[MarketING] Giving Up the 2240 Level to Close the Year... Will the January Effect Come?

KOSPI Falls for Two Consecutive Days, Drops Below 2240
January Effect Depends on Interest Rates
Possibility of Emerging from Policy Optimism

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI closed 2022 below the 2240 level. Although there is some expectation that the situation will change in the new year, the outlook remains bleak due to concerns over an economic recession. With no year-end Santa rally, investors' expectations for the January effect have also significantly diminished.

January Effect: Focus on Interest Rate Movements

On the 29th, the KOSPI ended the last trading day of the year at 2236.40, down 44.05 points (-1.93%) from the previous day. After two consecutive days of sharp declines, it fell below the 2240 level, closing out a disappointing year. Starting the year near the 3000 level, the KOSPI remained weak throughout the year and eventually dropped below 2240. The KOSDAQ, which was in the 1030 range at the beginning of the year, failed to recover the 700 level and closed at 679.29, down 13.08 points (-1.89%) from the previous session.

While there is usually hope to recover from sluggishness in the new year, the absence of a Santa rally at the end of this year and significant concerns about the economy next year have dampened expectations for the January effect. The January effect refers to the improvement in risk asset preference driven by investors' optimistic outlooks, even without any special positive news.

According to Hyundai Motor Securities, since 2001, the KOSPI has recorded positive returns in January 13 times, with an average return of 0.9% during those 13 Januaries. This means the January effect has occurred with a 70% probability.

To gauge the January effect this year, attention should be paid to interest rate movements. Researcher Lee Jaeseon of Hyundai Motor Securities explained, "As earnings revisions are ongoing, for investor sentiment to improve, it is crucial that positive changes occur in the macro environment. Considering that a period of high-intensity tightening is underway, the stock market will remain highly sensitive to the direction of interest rates." He added, "The Federal Reserve's rate hike cycle is likely to end as early as February or by the March Federal Open Market Committee (FOMC) meeting at the latest. If downward pressure on interest rates increases rather than upward pressure, the January effect can be expected."

Expect Policy Effects Rather Than Vague Rosy Outlooks

The January effect next year is expected to manifest more through policy effects than vague expectations of economic improvement. Researcher Kim Byungyeon of NH Investment & Securities analyzed, "If the January effect means a rise in stock indices based on vague hopes that the economy will improve in the new year, then the January effect is unlikely next year. However, if the January effect refers to increased attention to various thematic issues, sector rotation, short-term yield games, and issues related to the second year of the ruling government’s policies, then the January effect is likely to appear."

The stock index in the new year is expected to show a box range pattern with repeated rises and falls, while a stock market reflecting policy effects is likely to continue. Researcher Kim said, "In the past, the domestic stock market has often highlighted growth industry policy announcements in the second year of government administration. Since January is a period when corporate earnings bottoms have not yet been confirmed, investors are likely to focus on policy themes announced around the year-end and New Year."

Given the sharp decline in the index at the close, there is also a possibility of bargain buying at the beginning of the year. Researcher Choi Yujun of Shinhan Financial Investment said, "Concerns about further downside have led to a loss of buying momentum across the stock market. The importance of the U.S. December employment data next week has increased, and whether bargain buying will flow in at the start of the year is a variable to watch."

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