[MarketING] KOSPI Weakens Amid Material and Supply Gaps

KOSPI Starts Up but Turns Down
KOSDAQ Slightly Rises for Second Day

The KOSPI turned to a downward trend after starting with a rise. Due to a lack of catalysts and supply-demand gaps, the market seems unable to gain momentum to push higher. Concerns over tightening have provided an excuse for profit-taking, and it is expected that the process of absorbing sell-offs will continue for the time being.

KOSPI Turns Downward After Rising Start

As of 10:15 a.m. on the 23rd, the KOSPI was at 2,583.23, down 10.47 points (0.40%) from the previous day. The KOSDAQ rose 2.63 points (0.30%) to 879.01.

[Image source=Yonhap News]

The KOSPI started strong influenced by the previous day’s U.S. stock market rally led by Amazon-related positive news and tech stocks but failed to maintain the upward momentum and turned weak. On the 22nd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.01% from the previous day, while the S&P 500 rose 0.37% and the Nasdaq increased 0.95%.

Han Ji-young, a researcher at Kiwoom Securities, explained, "The U.S. stock market closed mixed as it showed strength centered on AI and tech-related stocks such as Amazon and Alphabet despite Jerome Powell’s hawkish remarks in the Senate following the House, the Bank of England’s (BOE) 50bp (1bp=0.01 percentage point) rate hike, and a slowdown in the May leading economic index."

Chairman Powell, in his monetary policy report to the Senate Banking Committee following his remarks to the House the previous day, mentioned that although inflation is declining, it is mainly due to energy or food prices, and there is still a long way to go. He also stated that if the economy proceeds as expected, two more rate hikes would be appropriate.

The BOE raised its benchmark interest rate by 50bp from 4.5% to 5.0% at the June monetary policy meeting. Researcher Han said, "This decision exceeded the market expectation of a 25bp hike and is interpreted as reflecting the view that inflation will remain high for a prolonged period, which is the background for the 50bp increase."

Amid tightening concerns, individual stocks surged significantly, leading the market. Seo Sang-young, a researcher at Mirae Asset Securities, analyzed, "The U.S. stock market showed strength led by large tech stocks related to cloud services driven by Amazon, recovering from early losses. Tesla fell more than 4% due to concerns over excessive gains but reversed to rise as rebound buying emerged. This active buying, especially in large-cap stocks, was evident among market participants." Amazon’s cloud division, Amazon Web Services (AWS), rose 4.26% on news of a $100 million (130 billion KRW) investment in generative AI. Tesla rose 1.98%.

However, this concentration on large-cap stocks may lead to increased volatility. Researcher Seo said, "Investor sentiment published by the American Association of Individual Investors has been above average for three consecutive weeks, indicating positive sentiment among individual investors. However, their buying is mainly limited to some large tech stocks, which means stock concentration is progressing and poses a burden on the market. Historically, when rising stocks do not spread to surrounding stocks, market volatility tends to increase."

Hesitant Foreign Investors, More Watchful Than Reducing Exposure

Foreign investors, who have led the stock market rise, have recently shown a selling bias, causing the index to remain sluggish.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "The recent shift to net selling by foreign investors is due to concerns over additional Fed rate hikes and profit-taking from stock price rises. Until valuation pressure eases and the fundamentals of the Korean stock market are confirmed to improve, there is a possibility of additional short-term sell-offs."

The process of absorbing sell-offs is expected to continue for the time being. Researcher Kim predicted, "Even if the Fed implements additional rate hikes, the magnitude is unlikely to be large. Investors seem to be using the rate hikes as an excuse for profit-taking rather than fearing the hikes themselves. After absorbing some sell-offs, investor sentiment is expected to calm down."

Foreign investors’ buying of Samsung Electronics continues, indicating no supply-demand outflow. Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "Foreign investors have net sold nearly 1 trillion KRW in the KOSPI market over the past four days, and buying has slowed since June. The recent selling appears to be profit-taking due to short-term peak recognition rather than reducing exposure." He added, "Despite the slowdown in the index, preference for Samsung Electronics remains strong, with steady buying inflows in June accounting for 84% of the total net buying in the KOSPI since the beginning of the year. As long as foreign investors continue to hold the 'benchmark' of the Korean stock market, it is difficult to argue that there is a supply-demand outflow."

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