[MarketING] KOSPI Falls Below 2500 Amid Heightened Caution

KOSPI Falls Below 2,500... KOSDAQ Drops Under 830
Trading Volume Shrinks Amid Stagnant Index Movement

The KOSPI fell for the second consecutive day, dropping below the 2500 mark. The KOSDAQ also declined for the third straight day, falling below the 830 level. This is the first time since the end of March that the KOSDAQ has fallen below 830. Due to uncertainty stemming from the U.S., investor sentiment has weakened, and trading volume continues to decrease, suggesting that a sideways market is likely to persist for the time being.

KOSPI Falls Below 2500 After Two Consecutive Days of Decline

On the 10th, the KOSPI closed at 2496.51, down 13.55 points (0.54%) from the previous day. The KOSDAQ ended the day at 829.74, down 6.11 points (0.73%). This is the first time the KOSDAQ has fallen below 830 since March 27.

[Image source=Yonhap News]

Market participants showed different movements. Foreign investors continued their buying trend in the KOSPI market with net purchases of 118.8 billion KRW but sold 8.7 billion KRW in the KOSDAQ market, maintaining a selling bias for five consecutive trading days. Meanwhile, institutional investors sold 123.1 billion KRW in the KOSPI market but made net purchases of 0.5 billion KRW in the KOSDAQ market. Individual investors made net purchases of 6.9 billion KRW and 21.9 billion KRW in the two markets, respectively.

As the U.S. debt ceiling negotiations faced difficulties and uncertainty increased, the market remained weak ahead of the U.S. Consumer Price Index (CPI) announcement scheduled for that night, leading to cautious sentiment. Investor sentiment weakened, and trading volume decreased. The combined trading volume of the KOSPI and KOSDAQ fell to the 16 trillion KRW range, the lowest level since February. Considering that it had exceeded 30 trillion KRW last month, this represents a reduction to about half.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "Since May, the decline in trading volume and funds around the stock market has continued. Customer deposits decreased by about 4 trillion KRW compared to last week, which is believed to reflect concerns about direction amid the absence of clear momentum following the Q1 earnings season."

Should You Sell Stocks in May as the Saying Goes?

There is a saying in the stock market: "Sell in May," and this year, analyses suggest that a selling strategy in May remains valid. This is because the fundamentals, which have not yet fully recovered, still face significant valuation pressure.

Park Seung-young, a researcher at Hanwha Investment & Securities, said, "The selling strategy in May is valid. The KOSPI fell from 2575 points last month to 2484 points, then rebounded this month, but the rebound's momentum is weak, and the reduced trading volume is evidence of a technical rebound."

The rebound driven by expectations has increased valuation pressure. Park explained, "The KOSPI's rebound is based on expectations that the U.S. Federal Reserve (Fed) will not raise interest rates further, that the bankruptcy of U.S. regional banks will not cause systemic risk, and that the global economy has bottomed out. These expectations have pushed the KOSPI's 12-month forward price-to-earnings ratio (PER) up to 13.4 times. A PER above 13 times has not been seen since May 2021, two years ago."

Contrary to expectations, the global economic recovery is slow, and interest rate cuts are unlikely, so high valuations are unlikely to hold strong support. Although the KOSPI's net profit forecast for this year has been slightly revised upward, the pace of upward revision is expected to be slow as it depends on the strength of the global economic recovery.

Park said, "There is no need to aggressively buy stocks above a PER of 13. The strategy of buying domestic stocks at a high PER and selling at a low PER was effective in years like 2001, 2009, 2016, and 2020, when the global economy rebounded rapidly and global monetary policy was expansionary." He added that although the global economy is rebounding from a low point this year, it is not yet at a level to justify buying at a high PER.

Park predicted, "It will take time for valuation pressure to ease. During the remainder of May, selling is expected to concentrate on sectors and stocks with high valuations, such as secondary batteries, and the KOSDAQ's decline is expected to be larger than that of the KOSPI."

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