[MarketING] Super Week, Short-Term Volatility Expansion Inevitable

KOSPI Starts Higher Then Turns Lower
Waiting Sentiment Grows Ahead of Major Events

The KOSPI index started higher but then turned lower. As the 'Super Week' filled with major events begins, cautious sentiment is intensifying, acting as downward pressure. Although short-term volatility expansion is inevitable due to major economic data releases and monetary policy events, there are opinions that corrections present opportunities to increase portfolio weight.

KOSPI Turns Lower After Starting Higher

As of 10:20 a.m. on the 12th, the KOSPI was at 2,635.99, down 5.17 points (0.20%) from the previous day. The KOSDAQ rose 1.06 points (0.12%) to 884.77.

[Image source=Yonhap News]

The KOSPI, which had risen to the 2,650 level early in the session, turned lower as cautious sentiment deepened ahead of the major events scheduled for this week. Due to this influence, the U.S. stock market also closed slightly higher last Friday. On the 9th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.13%, the S&P 500 increased 0.11%, and the Nasdaq rose 0.16% compared to the previous day.

Na Jung-hwan, a researcher at NH Investment & Securities, said, "Although some individual stocks showed strength, the market remained cautious ahead of the June U.S. Federal Open Market Committee (FOMC) meeting."

This week, a series of events are lined up, including the U.S. May Consumer Price Index (CPI), the June FOMC, real economy indicators such as retail sales and industrial production in the U.S. and China, and monetary policy meetings of the European Central Bank (ECB) and the Bank of Japan (BOJ). Han Ji-young, a researcher at Kiwoom Securities, said, "We expect the market to enter a volatile phase as it digests these major events throughout the week."

With recent market strength increasing profit-taking desires, short-term volatility expansion due to uncertainty is expected to be unavoidable. Lee Kyung-min, a researcher at Daishin Securities, said, "We need to consider fluctuations based on the U.S. May CPI results, the June FOMC, monetary policy uncertainties around the ECB meeting, and real economy data from the U.S. and China," adding, "Especially since investor sentiment is at a peak and risk indicators are attempting to rebound from low levels, it is necessary to maintain a high level of caution regarding short-term volatility expansion."

Volatility is expected to increase particularly among technology stocks sensitive to interest rates. Moreover, after AI-related stocks led the recent market rally with significant gains, there is a heightened demand for profit-taking in tech stocks. Seo Sang-young, a researcher at Mirae Asset Securities, said, "On the 9th, Bank of America (BoA) announced that $1.2 billion was withdrawn from technology funds for the first time in eight weeks, declaring the AI boom over, which triggered profit-taking mainly in related stocks," adding, "It is estimated that funds flowed out after Australia and Canada reversed to rate hikes and the U.S. Federal Reserve (Fed) showed hawkish tendencies." He further explained, "Ultimately, the market is showing strength centered on some stocks due to excessive concentration, driving index gains, but market changes will expand depending on monetary policies of central banks including the FOMC and supporting economic indicators."

Correction is an Opportunity to Increase Weight

Although volatility expansion is inevitable while digesting major events, there are opinions that corrections caused by this will be opportunities to increase portfolio weight.

One researcher said, "This FOMC is attracting more market sensitivity than any other FOMC since the beginning of the year, and it is necessary to note that short-term overheating concerns are increasing in both the Korean and U.S. stock markets," adding, "It is appropriate to prepare for aftershocks continuing into early next week as the FOMC results coincide with other major central bank monetary policy meetings such as the ECB and BOJ, as well as the expiration of futures and options in the U.S. stock market."

The researcher explained, "If there is a short-term correction this week, it should be seen as an opportunity to increase weight," adding, "It is important that the CPI level-down is confirmed and that the previously excessive expectations for rate cuts have largely normalized. In this case, weak U.S. economic data could be interpreted as expectations for rate cuts, and strong U.S. economic data could foster a favorable investment environment due to confidence in solid economic momentum."

Although major events are scheduled, it is important to note that these are already anticipated variables. Familiar negative factors inevitably lose influence over time. The researcher analyzed, "Fluctuations are expected while digesting major events, but no new negative factors will emerge during this process," adding, "The market has already recognized variables and negative factors such as the possibility of U.S. economic slowdown or recession, slowing or weakening Chinese economic recovery, potential additional U.S. rate hikes, and the Eurozone's hawkish stance, and the financial market has pre-reflected these through price or time adjustments over time."

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