KOSPI Less Sensitive to 'Exchange Rates and Interest Rates', Trend Rebound Difficult... "Prepare a Boring Boxpi Strategy"

[Asia Economy Reporter Lee Seon-ae] Has the KOSPI developed resistance? Despite the Bank of Korea raising the base interest rate and simultaneously lowering the economic growth forecast, the KOSPI showed a strong performance, rising more than 1%. The impact of exchange rate and interest rate movements on the market appears to be diminishing, and the burden of rate hikes and market rises is not as significant as before. Therefore, the general view in the securities industry is that the intraday low recorded in early July (2277) will not be breached again. However, persistent exchange rate fears and expected base rate hikes through the end of the year suggest that a box market (Boxpi, KOSPI trading within a range) is inevitable, requiring investment strategies to cope with this.

◆Base Rate & Powell's Speech 'In Line with Market Expectations' Brings Relief to KOSPI

On the 26th, the KOSPI opened higher at 2489.14, up 0.48%. This was interpreted as influenced by the U.S. stock market closing higher on expectations that Federal Reserve Chair Jerome Powell's Jackson Hole speech, scheduled at 11 p.m. Korean time, would meet market expectations. Seo Sang-young, head of Media Content at Mirae Asset Securities, predicted, "It seems unlikely that Chair Powell will make remarks stronger than the market expects."

The previous day, the KOSPI closed at 2477.26, up 1.22% from the previous trading day. The Bank of Korea's Monetary Policy Committee (MPC) decided to raise the base interest rate by 0.25 percentage points, as expected by the market. This marked the first time in history that the base rate was raised four consecutive times. Additionally, the economic growth forecast for this year was revised down to 2.6%, a 0.1 percentage point decrease from the previous forecast of 2.7%. Nevertheless, the market uncertainty decreased as the decision aligned with market expectations and the downward revision of the economic outlook was limited, leading to a higher close for the KOSPI. Kim Seok-hwan, a researcher at Mirae Asset Securities, noted, "Following the base rate hike decision, the won-dollar exchange rate also declined, expanding buying momentum from institutions in the spot market and foreigners in futures. Most sectors in both KOSPI and KOSDAQ rose evenly."

◆Sustained Trend Rebound Difficult, 'Boxpi Outlook'

It seems difficult for the KOSPI to continue a sustained rebound. Unless there are sufficient factors to overcome various negative elements such as exchange rates and interest rates, a tedious box market is inevitable. However, since the KOSPI's sensitivity to these influences has decreased, the volatility causing a sharp drop to lows is not significant, indicating some downside rigidity.

The KOSPI 200 Volatility Index (V-KOSPI), which recorded its lowest point since September last year, stood at 16.19 points the previous day, still below last year's average (19.57 points), and remains in a downward trend on the medium- to long-term moving average, which is the main reason for the box market outlook. Jung In-ji, a researcher at Yuanta Securities, pointed out, "Considering that the KOSPI showed extreme volatility, soaring to 28 points earlier this year, the current level is relatively low compared to the beginning of the year." He also emphasized the need to note the decreased sensitivity of the stock market to exchange rates. He explained, "The regression coefficient of stock market volatility to exchange rate volatility was -1.4047 in June-July, but it was -1.062 in August," adding, "The burden of exchange rate increases is not as significant as in the past, which should also be considered."

There is also analysis that the KOSPI is unlikely to fall below previous lows based on changes in earnings and valuation. The simultaneous decline in earnings per share (EPS) and price-earnings ratio (PER) from August last year to early July has ended, and as market volatility has subsided, stocks hitting new highs have begun to appear. Kim Su-yeon, a researcher at Hanwha Investment & Securities, analyzed, "The KOSPI PER recently rose to 9.9 times, but considering that the PER low since 2010 was 7.7 times in October 2018 and 8.4 times in March 2020 when COVID-19 occurred, it is difficult for prices to get any cheaper."

◆Similar to Early 2000s, 'Focus on Low PER Companies'

It seems necessary to establish investment strategies that can endure a box range market. Given the ongoing high exchange rates and base rate hike trend amid an economic recession, which can cause volatility, the general investment advice is to build a portfolio with low valuation stocks that have strong earnings improvement. Hi Investment & Securities pointed out the similarity between this year and the early 2000s macroeconomic environment, recommending attention to oil refining and steel stocks with low PER and high earnings forecasts. In 2000, liquidity contraction, interest rate hikes, and a strong dollar were common factors, and low PER stocks performed well. Jang Hee-jong, a researcher at Hi Investment & Securities, said, "We should pay attention to the relative strength of undervalued stocks as of the beginning of the year."

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