Will KOSPI Fall Below 2200 Again... Korea's Big Step and US CPI 'Panic Sell Vicious Cycle Thorny Path'

Fed Hawkish Remarks 'Pivot Expectations Vanish'... Oil Producers' Cut Agreement 'Market Rapidly Cools'
Panic Selling Fear Peaks 'Bottom Buying Advantageous'... Advice to Respond After Checking Various Indicators

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The cold wave in the domestic stock market is expected to begin in earnest from this week. Last week, the KOSPI barely succeeded in reclaiming the 2230 level after rising for three consecutive trading days, but it is now being pushed back toward the risk of falling below 2200. This is due to increasing domestic and international uncertainties ahead of the Bank of Korea's base interest rate hike and the release of the U.S. Consumer Price Index (CPI), which is expected to exert downward pressure. The hawkish remarks from the U.S. Federal Reserve (Fed) have extinguished hopes for a policy pivot, and the oil-producing countries' agreement on production cuts has also dampened market sentiment. Signs of profit slowdown with the start of the third-quarter corporate earnings season are also expected to cool investor sentiment.

On the 11th, the securities industry forecasted that the Korean stock market would show a limited upward trend and likely a downward trend this week due to accumulated negative factors and upcoming major economic indicators. The biggest variables are the Bank of Korea's base interest rate decision and the U.S. CPI announcement.

At the regular meeting of the Bank of Korea's Monetary Policy Committee scheduled for the 12th, a big step of a 50 basis points (0.5%p) increase in the base interest rate is anticipated. This is because the interest rate gap between Korea and the U.S. widened to 0.75 percentage points following the U.S.'s giant step (a 0.75 percentage point increase), which caused the Korean won to plunge to the 1400 won level against the dollar. When interest rates rise, the phenomenon of reverse money movement intensifies, where funds are withdrawn from risky assets and moved to safe bank deposits, which burdens stock market supply and demand.

On the 13th (local time), the U.S. September Consumer Price Index is scheduled to be released. The market consensus for the CPI is 8.1%, which remains significantly higher than the Fed's target inflation rate of 2%. Accordingly, a downturn in the U.S. stock market is expected, which is likely to affect the domestic stock market. SK Securities researcher Ahn Young-jin noted, "Although the September CPI consensus has slowed from the previous 8.3% to 8.1%, the path to the Fed's 2% target remains unclear," adding, "There is little clear evidence to put the brakes on the Fed's tightening stance."

Other factors such as international oil prices and corporate profit slowdown also cool the market. The rise in international oil prices due to the oil production cut plan by the Organization of the Petroleum Exporting Countries (OPEC) and the non-OPEC oil-producing countries coalition, 'OPEC Plus' (OPEC+), is likely to stimulate inflation. Rising crude oil prices act as factors increasing logistics and production costs, thereby pushing up prices. The Fed may continue its more hawkish stance. Yuanta Securities researcher Min Byung-gyu said, "OPEC+ decided to cut oil production by 2 million barrels per day starting in November," adding, "This is a huge change even considering economic and demand downturns, and the average oil price in October is expected to surge to around $100 per barrel." Goldman Sachs forecasted $110 per barrel by the end of this year and even higher at $115 per barrel in the first quarter of next year.

The third-quarter earnings of major companies are also expected to be a variable affecting the stock market trend this week. Corporate profit conditions are expected to slow down. According to financial information provider FnGuide, the combined third-quarter operating profit forecast for 172 KOSPI-listed companies with securities firms' earnings forecasts is 50.2036 trillion won, down 8.17% from 54.6719 trillion won a month ago.

Accordingly, the securities industry advises a conservative response, anticipating a dark market where recovery timing is uncertain. NH Investment & Securities researcher Kim Young-hwan said, "Considering the still hawkish remarks from Fed officials and the IMF's additional downward revision of the global economic growth forecast, it is judged that a rebound is unlikely to last long," recommending, "It is advisable to maintain a response focusing on small themes and individual stock momentum."

Although panic selling fears will be maximized, their effectiveness is expected to be limited. Samsung Securities researcher Kim Yong-gu said, "At the current index and valuation levels, it is more advantageous to engage in strategic alternative bottom buying rather than following herd panic selling," advising, "The priority in portfolio reorganization should be set from the perspective of excessive decline and stagflation risk hedging."

There is also advice that it is not too late to make portfolio changes slowly. Kiwoom Securities researcher Han Ji-young advised, "Ahead of the CPI event, the cautious sentiment surrounding it may increase market volatility from early in the week, but it is appropriate to respond after confirming indicators such as the U.S. CPI and China's Producer Price Index (PPI) rather than making preemptive position changes."

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