[Weekly Market Outlook] Buying Opportunity if KOSPI Drops... US Tightening vs China Reopening 'Mixed Signals'

Weekly KOSPI Outlook at 2380~2500 Range
"Buy Recommendations Continue Amid KOSPI Corrections"

The domestic stock market is expected to experience volatility as expectations for China's reopening (resumption of economic activities) and concerns over the U.S. tightening intensify simultaneously. However, securities firms advise maintaining a buying perspective during market corrections. This is because the expectation of China's economic stimulus increases the likelihood that Korea's export slump has bottomed out and will rebound. The KOSPI has a high correlation with the monthly export growth rate.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is speaking at a discussion hosted by the nonprofit organization 'Washington DC Economic Club' on the 7th (local time). Chairman Powell stated that the January labor market indicators, which defied market expectations, demonstrate the need to maintain the current interest rate hike policy for the time being. [Image source=Yonhap News]

According to securities firms on the 5th, the positive factor for the domestic stock market this week (6th to 10th) is the expectation of economic stimulus following the National People's Congress and the Chinese People's Political Consultative Conference (the Two Sessions) in China. This year's Two Sessions are expected to announce policies on expanding domestic demand (investment and consumption), attracting foreign investment, and securing energy stability. Amid high expectations for economic stimulus measures and the resulting rebound in economic indicators, China's manufacturing indicators are expected to recover significantly with the normalization of factory operations after March. The concern is the U.S. Federal Reserve's (Fed) tightening. In other words, this week is expected to see a tug-of-war between the upward factors of U.S. tightening and China's reopening and the downward factors. However, despite concerns over interest rate hikes until recently, the KOSPI has not shown a sharp decline, indicating that it is responding more to positive factors than negative ones.

Kim Young-hwan, an investment strategy researcher at NH Investment & Securities, who suggested a weekly KOSPI expected band of 2380 to 2500 points, said, "Despite various negative factors such as the Fed's hawkish policy stance, dollar strength, emerging market currency weakness, and valuation pressure due to downward earnings revisions, factors such as the expected slowdown in U.S. inflation, China's reopening, and economic stimulus are emerging." He advised, "Considering the direction of the economic cycle, positive factors are expected to be reflected over time, so it is recommended to respond with buying during KOSPI index corrections."

The monthly announced year-on-year export growth rate of Korea is also expected to soon pass its bottom. Korea's exports in February, announced on the 1st, decreased by 7.5% year-on-year, and daily average exports fell by 15.9%. This was largely due to a 43% drop in semiconductors, which have a large share in China, and an 18% plunge in petrochemicals. However, as China's reopening gains momentum, the decline in Korea's exports is likely to narrow. Kim said, "Korea's year-on-year export growth rate has a high correlation with the 12-month forward earnings per share (EPS) growth rate of the KOSPI," adding, "This means that the outlook for KOSPI earnings is likely to stop its steep decline and stabilize."

However, the possibility of continued aggressive interest rate hikes is expected to keep the KOSPI trapped in a trading range. The key point to watch is how much the Fed will raise rates at the March Federal Open Market Committee (FOMC) meeting scheduled for the 21st and 22nd. Kiwoom Securities expects uncertainty regarding the Fed's monetary policy to persist this week. With U.S. employment market indicators to be released and speeches from the Fed Chair and regional Federal Reserve Bank presidents pending, there could be increased debate over the direction of monetary policy. Especially, Fed officials are voicing the need to maintain high interest rates. On the 2nd, Neel Kashkari, president of the Minneapolis Fed, attending a corporate event in South Dakota, stated, "We are keeping both 25 basis points (bp) and 50 bp options open for the next FOMC meeting." Initially, the expected rate hike was about 0.25 percentage points, but the possibility of a big step (a 0.50 percentage point increase in the benchmark rate) is rising. According to the CME Group's FedWatch tool, which gauges the Fed's rate hike magnitude, there is a 73% chance of a 0.25 percentage point hike and a 27% chance of a 0.5 percentage point hike in March. Although the big step possibility is still low, if it rises during this week, it is expected to act as a negative factor for stock prices.

Park Sang-hyun, a researcher at Hi Investment & Securities, said, "Investors do not know whether to focus on U.S. rate uncertainty or the effects of China's reopening," adding, "It is true that the risk of the Fed's rate hike cycle due to persistent inflation risk is unlikely to be resolved before the March FOMC meeting." He continued, "Although foreign capital slowed in February, the reopening effects, which are becoming visible through successive Chinese economic indicator surprises, will again drive global capital inflows into the Chinese stock market," and "This is expected to act as a driving force that sequentially strengthens the inflow of foreign capital into the domestic stock market." He pointed out steel, non-ferrous metals, cosmetics, apparel, renewable energy, bio, and pharmaceuticals as sectors to watch this week.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "The combination of high valuations and China's reopening supports the dominance of sensitive sectors," adding, "It is worth paying attention to Chinese consumer stocks, renewable energy, shipbuilding equipment, and electric power equipment." SK researcher Ahn Young-jin advised, "If the policies related to real estate market stimulus fall short of expectations at the Two Sessions, it should be noted that the relative performance of these sectors may weaken after the conclusion of the Two Sessions."

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