Will Foreigners Continue KOSPI Shopping... Strong Expectation for 2500 Recovery

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Expectations for the KOSPI to reclaim the 2500 level are growing. This is because the upward trend is expected to continue amid hopes for a Federal Reserve (Fed) pivot (policy direction shift). The continued buying by foreign investors is also expected to support a favorable supply and demand environment.

On the 13th, the securities industry predicted the possibility of the KOSPI reclaiming the 2500 level this week. The expected range is from a minimum of 2350 to a maximum of 2520. The rise is expected to continue, supported by strong U.S. Consumer Price Index (CPI) data. As inflation indicators ease, expectations for a Fed pivot are also likely to be extended.

Kim Young-hwan, a researcher at NH Investment & Securities, explained, "Expectations for a Fed pivot due to favorable inflation indicators are expected to be extended," adding, "The stock market rebound may test levels close to the August peak." The KOSPI rose to around 2530 based on closing prices in mid-August.

The U.S. CPI inflation rate for October was 7.7%, lower than both September's 8.2% and the market forecast of 7.9%. Signs of inflation slowing have increased market expectations that the Fed will implement a big step (a 0.50 percentage point rate hike) next month. Kim Yumi, a researcher at Kiwoom Securities, stated, "Considering that several Fed officials made remarks supporting a slowdown in the rate hike pace after the October CPI release, it is unlikely that other officials will differ significantly. However, the signal for a slowdown in tightening pace was already given in the November Federal Open Market Committee (FOMC) statement."

Foreign demand is also a factor driving the KOSPI's rise. The buying momentum is expected to continue. The won-dollar exchange rate has also stabilized, creating a favorable environment for foreign demand. Foreign investors were net buyers on all days in November except for one day (the 10th). Last week, the won-dollar exchange rate closed at 1,318.40 won, having fallen by more than 100 won over the past month.

Seo Jeong-hoon, a researcher at Samsung Securities, said, "The sharply falling won exchange rate has been evidence of foreign demand and is expected to be a driving force going forward. The 'exchange rate-demand spiral effect' is worth anticipating," adding, "The recent expectations for easing China's quarantine policies will also be a positive factor domestically."

Yang Ji-yoon, a researcher at NH Investment & Securities, noted, "From November 1 to 9, foreign investors bought about 2 trillion won worth of KOSPI shares," explaining, "Following the 20th National Congress of the Chinese Communist Party last month and President Xi Jinping's third term, China policy risks have intensified, leading to a 'China run' in global stock markets. This has caused capital to shift to other countries within Asian emerging markets, and the recently strengthened zero-COVID policy is also a factor causing capital outflows from the Chinese stock market."

Meanwhile, according to the Korea Exchange, last week (7th to 11th), the KOSPI reclaimed the 2370 level on the 7th with about a 1% rise from the previous trading day. It then rose for three consecutive trading days, recovering the 2420 level as of the close on the 9th. However, it turned downward on the 10th, falling back to the 2400 level. On the 11th, buoyed by a strong U.S. stock market, investor sentiment eased, resulting in a sharp rise of over 3.3%, reclaiming the 2480 level.

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