Next Week's KOSPI... Earnings Market VS China Lockdown and US Tightening "Power Struggle"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Next week (May 2nd~6th), the domestic stock market is expected to be influenced by the earnings season, the spread and lockdown measures of COVID-19 in China, and the tightening policies of the U.S. Federal Reserve (Fed).

According to the Korea Exchange on the 30th, the KOSPI closed at 2695.05, up 27.56 points (1.03%) from the previous day. The KOSDAQ also closed at 904.75, up 12.53 points (1.40%), surpassing the 900 mark for the first time in three days. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The U.S. stock market rose sharply due to strong corporate earnings and robust employment, improving investor sentiment, which led to gains in major Korean indices. The intraday gains expanded following the strength in the Chinese and Hong Kong markets."

NH Investment & Securities forecasted that next week the KOSPI will move between the 2630 and 2750 levels. Positive earnings from Korean companies are expected to be an upward factor, while concerns over Fed tightening are seen as a downward factor. Kim Young-hwan, a researcher at NH Investment & Securities, predicted, "Next week, the KOSPI will be influenced by positive earnings outlooks of Korean companies, uncertainties surrounding the spread and lockdown measures of COVID-19 in China, and expectations of Fed tightening."

Although the first-quarter operating profit forecasts for companies listed on the KOSPI have declined consecutively over the past four weeks, the annual operating profit forecast for 2022 slightly increased from 249.8 trillion won to 250 trillion won, indicating expectations of solid performance. Researcher Kim said, "Supported by a steady annual earnings outlook, the KOSPI’s 12-month forward earnings per share (EPS) is rising, and the KOSPI price-to-earnings ratio (PER) has fallen below the long-term average."

On the other hand, China’s lockdown measures are expected to negatively impact the domestic stock market. In Beijing, the capital of China, lockdown zones to curb the spread of COVID-19 are expanding. Meanwhile, the daily new COVID-19 cases in Shanghai, which had exceeded 20,000, have recently shown a clear decline, and Shanghai plans to gradually lift lockdowns in some areas starting early May. Researcher Kim noted, "Although China’s lockdown is an unpredictable variable, considering the decrease in cases in Shanghai and the district-level lockdowns in Beijing, it appears that the Chinese government’s control measures are somewhat effective. Therefore, the downside pressure across the stock market is not expected to intensify significantly."

The Fed’s decision on the benchmark interest rate is also a key variable for the stock market next week. Researcher Kim said, "The market’s biggest concern, the Fed’s tightening outlook, already reflects the possibility of 3 to 5 rate hikes of 50 basis points (1bp = 0.01 percentage points) within this year," adding, "There is little room for further amplification of tightening concerns."

Accordingly, growth stocks, which have been significantly affected by rising interest rate pressures, are expected to rebound. Researcher Kim emphasized the need to focus on quality growth stocks whose corporate fundamentals are less likely to be damaged by rising funding costs. The sectors of interest include internet, secondary batteries, pharmaceutical bio, energy, and non-ferrous metals.

This content was produced with the assistance of AI translation services.