[MarketING] Uncertainty Still Outweighs Expectations

KOSPI Recovers to 2420 Level
Rises Two Consecutive Days but Gains Are Limited
Impact of US Inflation and Tightening Uncertainty

[Image source=Yonhap News]

The KOSPI recovered to the 2420 level after rising for two consecutive trading days. While expectations for China's reopening (resumption of economic activities) fueled the domestic stock market's upward trend, concerns over U.S.-origin inflation and uncertainty about interest rate paths limited the gains. Amid the momentum in China's economy and uncertainties in the U.S., the market is expected to show strength centered on cyclical sectors such as chemicals and steel.

KOSPI Rises for Two Consecutive Days... Recaptures 2420 Level

On the 2nd, the KOSPI closed at 2427.85, up 15.00 points (0.62%) from the previous session. Meanwhile, the KOSDAQ ended the day down 4.41 points (0.56%) at 787.19. The KOSPI rose for two consecutive days, regaining the 2420 level, but the KOSDAQ gave up the 790 level after just one day.

On that day, the KOSPI rose more than 1% reflecting expectations for China's economic recovery but the gains narrowed. The KOSDAQ, which started higher, turned to a decline.

Although expectations for China's reopening seemed to ease U.S.-origin uncertainties, the domestic market was not free from the impact of rising U.S. Treasury yields and a strong dollar. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The KOSPI and KOSDAQ started higher but narrowed their gains to close mixed. After the market opened, the dollar strengthened and U.S. Treasury yields rose further, leading to declines in U.S. after-hours futures and a pullback in the previously surging Chinese markets, causing the gains to be partially given back."

While reflecting optimism, the market remains overshadowed by U.S.-origin inflation concerns and tightening fears. Lee Woong-chan, a researcher at Hi Investment & Securities, said, "The uncertainties in March will only be resolved after confirming events. Recently, strong U.S. economic performance has reignited inflation concerns and interest rate hikes, which must be addressed for the market to advance. Until these worries are alleviated, a strong rally is difficult."

A correction phase is expected to continue until the U.S. Federal Open Market Committee (FOMC) meeting in March. Lee added, "Ultimately, inflation data in mid-March must be confirmed to gauge the rate hike magnitude at the end-of-March FOMC, and the final rate will be checked through the dot plot."

Lee Kyung-min, a researcher at Daishin Securities, said, "The March FOMC will be a key trigger for calming volatility and passing the bottom in global markets including the KOSPI. The focus will be on economic and inflation outlooks and whether the 2023-2024 dot plot will be adjusted. Especially, attention should be paid to changes in the dot plot; if the 2023 dot plot exceeds 5.5% and the gap between 2023 and 2024 dot plots narrows, short-term volatility expansion is inevitable."

As the rotation market continues, there is a view that attention should be paid to cyclical stocks. Lee Eun-taek, a researcher at KB Securities, said, "Rising inflationary pressures and valuation burdens will limit gains, but conditions will improve from the end of the month. Although rotation will continue for the time being, market interest will shift from rotation to cyclical stocks (semiconductors, materials, industrials) around March to April."

Researcher Lee Woong-chan also said, "China's economic momentum is driving the rise in global emerging markets, and amid ongoing U.S. uncertainties, the market will show strength centered on cyclical stocks such as chemicals and steel. As the April earnings season approaches, it is necessary to focus on earnings. There will no longer be a need to lift stocks with baseless themes; genuine beneficiaries of the economy will emerge."

No Clear Supply and Demand Players

Supply and demand conditions are also uncertain. With no clear dominant players, the possibility of foreign investors taking profits is increasing.

Researcher Lee Kyung-min said, "Since July last year, foreign investors have maintained a net buying stance regardless of the direction of the foreign exchange market. This is judged to be due to the long-term downtrend in the Korean market, undervaluation attractiveness after sufficient correction, and expectations of a peak in the foreign exchange market," adding, "However, caution is needed as short-term profit-taking sentiment may strengthen even in the accumulation phase." He further noted, "Despite recent earnings downgrades, the KOSPI's sharp rebound has pushed valuations to the highest level since 2012 compared to developed countries, increasing foreign investors' desire to realize some profits in the Korean market."

With no clear supply and demand players, the market has become increasingly dependent on foreign investors due to continued foreign net buying. Accordingly, profit-taking by foreign investors is expected to increase downward pressure on the KOSPI. Lee analyzed, "While the rebound momentum from foreign net buying is limited, the market impact from net selling is significant. The absence of domestic buyers in KOSPI supply and demand increases the influence of foreign trading, and even small profit-taking relative to the buying scale leads to increased downward pressure on the KOSPI."

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