[Weekly Market Outlook] KOSPI Trapped in a Box Range... Watching US Debt Ceiling Negotiations

This week (22nd to 26th), attention will be focused on whether the US debt ceiling negotiations reach a resolution, with the stock market expected to show sluggish movements.

According to the securities industry on the 21st, the expected weekly KOSPI band is forecasted to be between 2430 and 2550 points. While the US debt ceiling negotiations are cited as a major factor for volatility, the upward revision of corporate earnings forecasts is mentioned as a positive factor.

Since the 19th, US President Joe Biden has been attending the Group of Seven (G7) summit held in Japan, temporarily pausing the debt ceiling negotiations. They are expected to resume after his return on the 21st. Although US Treasury Secretary Janet Yellen expressed concern that the federal government’s cash reserves would run out by June 1st, both President Biden and House Speaker Kevin McCarthy have asserted that "the United States will not declare a default," easing fears of an actual default.

President Joe Biden of the United States
[Photo by Yonhap News]

However, even if the debt ceiling negotiations are delayed and the 'X date' pointed out by Secretary Yellen approaches, the impact on the domestic stock market is expected to be limited. NH Investment & Securities researcher Na Jung-hwan said, "When the US federal government shut down for 35 days in 2018 due to a failure to agree on the budget, the KOSPI index showed a sideways trend," adding, "After the issue was resolved, the stock price rose, indicating that the debt ceiling is only a short-term issue and not a factor that changes the trend."

On the 25th, the Bank of Korea will hold its regular Monetary Policy Committee meeting to decide the base interest rate. The prevailing forecast is that the base rate will be kept at the current level (3.5% per annum). On the same day, the US first-quarter Gross Domestic Product (GDP) will be announced, and the minutes of the May Federal Open Market Committee (FOMC) meeting are scheduled to be released. Additionally, on the 23rd, the US May Manufacturing and Services Purchasing Managers’ Index (PMI) and US April New Home Sales Index will be published.

In the domestic stock market, it is advised to focus on semiconductor, internet, and automobile-related stocks, which have seen strong net buying by foreigners since the beginning of this month. Samsung Electronics researcher Lee Hyuk-jin said, "The net buying amount by foreigners has reached 11 trillion won (based on KOSPI) compared to the beginning of the year, while market deposits and credit balances, which gauge individual investor strength, are declining," adding, "Portfolios should be restructured focusing on sectors with strong foreign demand." He emphasized, "In particular, attention should be paid to the semiconductor sector," noting, "The current business conditions are passing the worst phase, and signs of a turnaround such as inventory reduction are emerging."

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