[Weekly Market Outlook] KOSPI Faces Headwinds from Recession, Tightening, and Capital Gains Tax Avoidance

KOSPI Falls 1.6% This Week... Semiconductor and 2nd Battery Companies See Larger Declines
No Index Rise Momentum Next Week, Focus on Government Policy Beneficiaries

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] This week (December 19-23), the KOSPI closed lower as recession concerns and fears of tightening by the U.S. Federal Reserve (Fed) resurfaced. Next week, the stock market is expected to see a sharp decline as individual investors continue to sell shares to avoid the major shareholder capital gains tax.

According to the Korea Exchange on the 25th, the KOSPI fell 1.6%, closing at 2313.69 from an opening of 2350.78 on the 19th. There was only one day of gains during the five trading days, on the 22nd. On the 23rd, the index dropped more than 1.8% in a single day as concerns grew that the Fed’s resolve to raise interest rates could strengthen after the U.S. third-quarter gross domestic product (GDP) was confirmed to be higher than the preliminary estimate amid recession fears for next year. On the same day, the KOSDAQ index fell more than 3%, influenced by individual investors selling stocks to avoid the major shareholder capital gains tax.

By sector, semiconductor, secondary battery, and automobile-related companies showed weakness. Following Micron’s disappointing earnings announcement, Samsung Electronics and SK Hynix fell 2.3% and 0.64%, respectively, over the week. News of Tesla expanding its vehicle discount led to sharp declines in secondary battery-related companies such as LG Energy Solution (-5.6%), Samsung SDI (-5.47%), EcoPro BM (-3.1%), and L&F (-5.92%). Additionally, concerns over the implementation of the U.S. Inflation Reduction Act (IRA) contributed to continued declines in Hyundai Motor (-2.18%) and Kia (-1.57%).

There is little momentum expected to stimulate KOSPI volatility next week. NH Investment & Securities forecasts the KOSPI trading range to be between 2310 and 2410. As trading volume is expected to decrease due to foreign asset managers’ year-end book closing, market volatility is predicted to remain low. However, if individual investors flood the market with sell orders to avoid the major shareholder capital gains tax, further declines in the index are anticipated.

It is also a challenging phase to expect earnings momentum from companies. Dongchan Yeom, a researcher at Korea Investment & Securities, said, “December is a period when earnings momentum slows down, and the current earnings direction is downward. The downward revisions in earnings estimates were concentrated in semiconductor companies like Samsung Electronics and SK Hynix, as well as financial sectors such as Shinhan Financial Group and KB Financial Group.”

The only hopeful aspect is government policy themes. With the government’s announcement of ‘New Growth 4.0’ and the ‘2023 Economic Policy Direction,’ it is worth expanding interest to sectors expected to benefit, such as smart grids and content industries. Younghwan Kim, a researcher at NH Investment & Securities, said, “Considering the government’s announced policies, mobility and secondary batteries, which have already been highly anticipated, as well as emerging sectors like space exploration, quantum technology, and smart agriculture, which are still in early stages, are unlikely to form strong themes. Excluding these, smart grids, content, and overseas orders are likely to see gains.”

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