[MarketING] KOSPI Rises After 6 Days but Lacks 'Strength'

by Song Hwajung

Published 22 Dec.2022 10:43(KST)

[Asia Economy Reporter Song Hwajeong] The KOSPI rebounded after six days. The improvement in investor sentiment, influenced by the U.S. Consumer Confidence Index and strong Nike earnings, as well as bargain buying amid the prolonged downturn, is believed to have contributed. However, the problem is that there is no strength to sustain this upward momentum. Momentum and supply-demand gaps are expected to continue throughout the year-end.

KOSPI Turns Upward After Six Days

As of 10:21 a.m. on the 22nd, the KOSPI was at 2340.71, up 11.76 points (0.5%) from the previous day. It is attempting to settle above the 2340 level with an upward trend after six days. The KOSDAQ rose 1.2% to 714.16.

The rebound appears to have been driven by improved investor sentiment from the U.S. The New York stock market closed higher as the Consumer Confidence Index released early in the session showed improvement, combined with strong Nike earnings, slightly easing recent expanded economic concerns. The three major U.S. indices?Dow Jones, S&P 500, and Nasdaq?all recorded gains of over 1%.

According to the U.S. Conference Board, the Consumer Confidence Index for December was 108.3, significantly exceeding the Bloomberg consensus forecast of 101 and marking the highest level since April.

Corporate earnings surprises also supported the easing of investor sentiment. Nike's quarterly sales announced the previous day increased by 17% compared to the same period last year, and earnings per share were $0.85, well above the market forecast of $0.64. FedEx also exceeded market expectations with earnings per share of $3.18 compared to the forecast of $2.80.

Seosangyoung, a researcher at Mirae Asset Securities, analyzed, "The U.S. stock market's rise, supported by the improvement in the Consumer Confidence Index and the easing of recession concerns, is positive for the domestic stock market. Additionally, Nike's stronger-than-expected earnings and guidance during the earnings season, which was expected to shrink, also contributed to the overall improvement in investor sentiment."

Sustaining the Rise Difficult Due to Lack of Momentum

Although the KOSPI has made a rare rebound, there is a lack of driving force to sustain the upward trend.

Kim Younghwan, a researcher at NH Investment & Securities, explained, "The next two weeks are expected to be a momentum gap period due to the year-end. Major economic indicators will be released at the beginning of the month, and the fourth-quarter earnings announcements will begin in mid-January."

Trading sluggishness continues due to factors such as book closing (accounting year-end settlement). The trading value on the Korea Stock Exchange was only 4.8459 trillion won on the 19th, marking the lowest level in over three years since January 2, 2020 (4.6381 trillion won). Consequently, the combined trading value of KOSPI and KOSDAQ also fell to the 9 trillion won range. Choi Yujun, a researcher at Shinhan Investment Corp., said, "The perception that there will be no clear direction in the stock market due to the lack of momentum is prevailing. Since December, foreign demand has shown limited net selling centered on programs, and attention is shifting more to individual stocks and sector-specific factors, resulting in a short-cycle rotation pattern."

Since there is no suitable driving force, a trend reversal to a sustained rise is expected to be difficult for the time being. Kim Jihyun, a researcher at Kiwoom Securities, said, "Although improved consumer sentiment and strong Nike earnings provided some rebound momentum, the possibility of a trend reversal to a sustained rise is low. However, with expectations forming for a trend decline in inflation due to falling expected inflation, the market may respond positively after the Personal Consumption Expenditures (PCE) price index announcement on the 23rd. Afterward, market attention is likely to shift to the economy and employment."