Will KOSPI's Decline Narrow This Week... Expectation of Inflation Concern Peak

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] This week (18th-22nd), the domestic stock market is expected to be buoyed by rising expectations of an inflation peak-out. Concerns about an economic recession and the resurgence of COVID-19 remain downside risks.

According to the financial investment industry on the 17th, the KOSPI is expected to see a reduced decline as investors anticipate a drop following the peak of inflation. NH Investment & Securities evaluated that despite the consumer price index (CPI) exceeding expectations and the resulting strong tightening concerns from the U.S. Federal Reserve (Fed), the stock market has not been significantly shocked, forecasting the KOSPI to move between 2260 and 2400. However, ongoing recession fears and the resurgence of COVID-19 were noted as variables.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "There is a possibility of a rebound based on factors such as the potential for inflation peak-out and policy expectations responding to recession risks," but added, "considering that it will take considerable time for inflation to stabilize, if the stock index rebounds, it is advisable to view it as an opportunity to readjust portfolios."

Daishin Securities diagnosed that the June CPI shock has rather clarified the Fed’s rate hike magnitude, and from the perspective of uncertainty resolution, they expect a high possibility of a market rebound after the July Federal Open Market Committee (FOMC) meeting. Furthermore, they analyzed that the market is gradually aligning with the belief that inflation control is achievable, as expectations for inflation control are being priced in ahead of time.

Mirae Asset Securities noted that while short-term interest rates rose slightly this month, long-term rates have remained stable, predicting that the easing of interest rate volatility and the downward stabilization of long-term rates will positively impact market stability. This marks a different atmosphere compared to the May CPI shock.

Park Hee-chan, a researcher at Mirae Asset Securities, emphasized, "We maintain an increased allocation to domestic and foreign government bonds and relatively prefer big tech and REITs within stocks, which were heavily affected by rising interest rates," adding, "amid growing earnings concerns, core big tech companies could emerge as stable investment alternatives."

Employment-related indicators and housing market data from the U.S., released ahead of the FOMC, are also expected to attract market attention. The U.S. NAHB Housing Market Index released on the 18th and the June housing starts and building permits data released on the 19th will provide insight into how the U.S. housing market has been affected following recent Fed rate hikes.

The July Loan Prime Rate (LPR) decision in China, scheduled for the 20th, is an indicator reflecting the Chinese government’s economic outlook. The market expects the July LPR to remain unchanged. Jung Yong-taek, chief economist at IBK Investment & Securities, explained, "As central banks in the U.S. and other countries tighten policies and raise rates, if China keeps its rates steady, China’s monetary policy will stand out in contrast to other countries like the U.S."

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