This Week's KOSPI Hits Bottom at 2500... No Rebound Factors but Downside Rigidity Secured

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[Asia Economy Reporter Lee Seon-ae] This week, the KOSPI is expected to be influenced by concerns over inflation and uncertainties surrounding the spread of COVID-19 in China and lockdown measures. Although the market lacks rebound catalysts, it is analyzed that downside rigidity has been secured.

NH Investment & Securities projected the KOSPI's expected range for this week (16th-20th) to be between 2500 and 2650 points. Rebound factors include the easing of the U.S. Federal Reserve's (Fed) tightening monetary policy, the calming of the COVID-19 spread in China, and the resolution of the Russia-Ukraine war. However, it was noted that expectations for these factors are low. The absence of a rebound trigger is identified as another concern for the current stock market.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "Since the outlook for the calming of COVID-19 spread in China and the Russia-Ukraine war is difficult, the easing of Fed tightening is key," adding, "For this, price stability in the U.S. is essential, and a clear downward stabilization of prices over 2 to 3 months needs to be confirmed."

As more time is needed to confirm a rebound trigger, the next aspect to look forward to is price merit. Researcher Kim evaluated, "Overall, the KOSPI's price-to-earnings ratio (PER) is 9.5 times, which is below the long-term average of 10.1 times, indicating a high price merit zone."

In particular, the price burden of growth stocks leading the stock market correction has significantly decreased compared to the past. Researcher Kim analyzed, "The KOSPI large-cap growth stocks' PER is 19.1 times, and the KOSPI small- and mid-cap growth stocks' PER is 20.5 times, which are 9% and 6% higher than the 5-year averages of 17.4 times and 19.3 times, respectively," adding, "The downside rigidity of the stock market can gradually strengthen."

Seo Jeong-hoon, a researcher at Samsung Securities, explained, "The April Producer Price Index (PPI) rose 11.0% year-on-year, exceeding the expected 10.7%," and added, "The core PPI, excluding food and energy, rose 8.8% year-on-year, slightly below the expected 8.9%." He emphasized, "Although some signals of passing the inflation peak have been confirmed, the dominant view is that it is still too early to be reassured."

Choi Yoo-jun, a researcher at Shinhan Financial Investment, stated, "The possibility of earnings damage cannot be ruled out amid ongoing macro uncertainties," and explained, "With U.S. inflation indicators released and the Russia war prolonged, whether lockdown situations improve in China is considered a key variable."

Meanwhile, advice has been given to expand investment weights in safe assets and growth stocks. Moon Nam-jung, a researcher at Daishin Securities, said, "From a mid-term perspective, it is necessary to increase weights during price adjustments in the first half of the year in high-dividend stocks with low volatility, energy sectors that can guarantee earnings stability, consumer discretionary, industrials, and growth stocks (IT, healthcare, ESG, electric vehicles & secondary batteries, aerospace, metaverse)."

There is also an opinion that attention should be paid to the performance of domestic companies. Researcher Kim Young-hwan explained, "The KOSPI operating profit forecast has risen for two consecutive weeks," adding, "The first-quarter earnings announcements are nearing completion, and operating profit forecasts for the second to fourth quarters are also rising." Looking at changes in the 2022 annual operating profit forecasts by sector, energy, transportation, automotive, banking, and semiconductor sectors are leading the upward revisions.

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