[Research Center Director Urgent Diagnosis] KOSPI Approaches Previous Low 'Panic Selling Inevitable'... "Must Take a Long-Term View"

On the 14th, when the US stock market plummeted due to inflation fears, the won-dollar exchange rate and KOSPI were displayed in the dealing room of Hana Bank in Euljiro, Seoul. On that day, the exchange rate surpassed 1,390 won for the first time in 13 years and 5 months. Photo by Mo Honam munonam@

[Asia Economy Reporters Seon-ae Lee, Min-ji Lee, Jeong-yoon Lee, Myeong-hwan Lee] Due to increased volatility in the stock market, there are forecasts that the KOSPI could break below its previous low in the fourth quarter. Ultimately, panic selling driven by fear is expected to dominate the domestic stock market. If possible, investors should increase their cash holdings; if not, investment advice flooding in suggests enduring the battle against time with a 'hold' strategy rather than 'selling without benefit.'

On the 14th, Yoon Seok-mo, Head of Samsung Securities Research Center, said, "The rebound in the stock market so far was driven by expectations of inflation peaking and easing of tightening, but these hopes have been shattered." He added, "On the contrary, the Federal Reserve's tightening has intensified, and corporate earnings have been revised downward, so the KOSPI is expected to fall to its previous low in the fourth quarter," warning that risk management is necessary. He further advised, "Panic selling is inevitable, but from an investor's perspective, if possible, increase cash holdings, and if you must hold, you should take a long-term view until a turnaround after the first half of next year." Samsung Securities had optimistically forecasted the KOSPI index to reach 2800, expecting year-end corporate earnings not to decline significantly compared to last year, but also mentioned that downward revisions are now unavoidable. Yoon emphasized, "A downward adjustment of the KOSPI is inevitable," and "We must carefully monitor downside risks now."

Yoon Ji-ho, Head of Ebest Investment & Securities Research Center, also expressed concerns about further increased market volatility. He said, "The reason the market had rebounded was the expectation that inflation would be controlled as international oil prices fell," adding, "With weak housing costs and other factors, strong measures are needed, and now there is a possibility that the Fed will take additional actions, with talk of a 100 basis point increase in the benchmark interest rate." He continued, "In the short term, uncertainty in the market will increase until the Federal Open Market Committee (FOMC) meeting on September 20-21," but added, "If energy prices stabilize, concerns about the Eurozone economy will ease, weakening the one-sided strength of the dollar, and in that case, it does not seem likely to lead to a catastrophe."

Daishin Securities is the only securities firm that early predicted the collapse of the KOSPI's previous low by year-end. Jeong Yeon-woo, Head of Daishin Securities Research Center, urged continuously increasing cash holdings as it is difficult to change the current global financial market atmosphere. This judgment is based on the fact that the financial market is suffering from the double burden of tightening pressure and economic uncertainty, leading to increased downward pressure on the stock market. The bottom predicted by Jeong is around the 2050 level, which is the stock price bottom considering the change rates of the U.S. Institute for Supply Management (ISM) manufacturing index and earnings per share (EPS) forecast changes.

Even if the KOSPI does not break below its previous low, the general consensus is that increased volatility is inevitable for at least two months. Lee Kyung-soo, Head of Meritz Securities Research Center, said, "There were concerns about core inflation drivers, and this was realized in the U.S. August Consumer Price Index (CPI) announcement," adding, "Index volatility is inevitable, so a conservative response is necessary." However, he predicted that the index would not fall to the previous low. Lee said, "It will not fall to the previous low, but meaningful declines in core inflation drivers such as housing costs and new car prices need to be observed, so about two months of noise (volatility) is inevitable."

Kim Hyung-ryeol, Head of Kyobo Securities Research Center, said, "Since the Fed is aggressively tightening, it will naturally have a negative impact on the stock market," adding, "If a 100 basis point increase becomes visible, it means the Fed intends to dampen economic sentiment even at the cost of hurting the market, so the market's warning signals will grow louder," urging a conservative approach.

Yoon Chang-yong, Head of Shinhan Financial Investment Research Center, also raised his voice for a conservative response strategy, confirming that inflation has not yet peaked based on the CPI results. However, he said, "Although the CPI came out higher than market expectations, leading to increased expectations of tightening, the possibility of a Fed monetary policy change based on the CPI results is limited so far," and added, "We expect a higher possibility of a 75 basis point hike, and foresee the U.S. benchmark interest rate at around 4.25% by year-end."

IBK Investment & Securities also sees little likelihood of a 100 basis point hike becoming a reality. Jeong Yong-taek, Chief Economist at IBK Investment & Securities, said, "Currently, the U.S. futures market reflects about a 20% chance of a 100 basis point hike, but economic slowdown must also be considered," analyzing, "The Fed is increasing the scale of quantitative tightening by doubling the sale of mortgage-backed securities (MBS), so it will not raise interest rates by 100 basis points to the extent that it burdens the economy." He further advised reducing exposure to cyclical stocks as a strategy, given the expected economic slowdown. Jeong said, "Investor sentiment for growth stocks has quickly cooled, shifting to cyclical stocks, but now is the time to reduce exposure. Market volatility may increase until the FOMC, so it is better to increase exposure to growth stocks in the long term or respond by buying safe assets such as bonds."

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