[MarketING] Improving Fundamentals, Easing Short-Term Overheating

KOSPI and KOSDAQ Rise Over 1%
Correction Eases KOSPI Overbought Condition

The KOSPI and KOSDAQ have continued their upward trend for the second consecutive day. In the early session, both indices showed gains of over 1%, with the KOSPI recovering to the 2590 level and the KOSDAQ to the 880 level. Due to recent corrections, the domestic stock market's overbought condition has been somewhat alleviated, leading to expectations that future corrections will not be deep. Additionally, with fundamentals improving, it is anticipated that the market will resume its rise based on solid downside rigidity.

KOSPI Rises for Second Day... Recovers to 2590 Level

As of 10:25 a.m. on the 3rd, the KOSPI was up 32.16 points (1.25%) from the previous close, standing at 2596.44. The KOSDAQ rose 13.04 points (1.50%) to 881.28.

[Image source=Yonhap News]

This strong performance is attributed to the U.S. stock market closing higher on the 30th of last month amid easing inflation concerns. On the 30th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.84%, the S&P 500 increased by 1.23%, and the Nasdaq climbed 1.45% compared to the previous day.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market rose thanks to the stabilization of inflation, as evidenced by the slowing Personal Consumption Expenditures (PCE) price index, and the upward revision of the consumer sentiment index, which was favorable for investment sentiment regarding the economy. Furthermore, the upgrade of investment opinions on technology stocks, including those related to artificial intelligence (AI), also contributed to the strong performance of related stocks, driving the index higher."

The May Personal Consumption Expenditures (PCE) price index, a key inflation gauge monitored by the U.S. Federal Reserve (Fed), showed favorable results. The PCE price index rose 3.8% year-over-year, which was below the previously announced 4.3% and the expected 4.6%. The core PCE price index, which excludes volatile energy and food prices, recorded 4.6%, also below the previous month’s 4.7% and the forecasted 4.7%.

Sentiment indicators also showed improvement. The University of Michigan’s consumer sentiment index for June came in at 64.4, improving from the previous month’s 59.2 and the preliminary figure of 63.9.

Jiyoung Han, a researcher at Kiwoom Securities, analyzed, "The generally lower-than-expected inflation indicators appear to have contributed to the recovery of risk appetite. Additionally, amid concerns about recession following the Fed’s tightening, the strong performance of the University of Michigan’s consumer sentiment index seems to have injected market expectations that the U.S. consumer economy slowdown will be limited."

As the stock market enters a phase sensitive to economic indicators, it is expected to continue reacting to key data releases this week. Han said, "The market has entered a phase where it reacts sensitively to indicators. The results of leading indicators scheduled for this week, such as the U.S. June Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) and China’s Manufacturing PMI, will influence the market direction. Furthermore, the U.S. June nonfarm payrolls and unemployment rate, to be released ahead of the July Federal Open Market Committee (FOMC) meeting, along with the June Consumer Price Index (CPI), will be major variables affecting Fed policy decisions." On the 3rd, China’s Caixin Manufacturing PMI and the U.S. ISM Manufacturing Index will be released, and on the 7th, the U.S. June nonfarm payrolls and unemployment rate are scheduled for release.

Alleviated Overbought Conditions, Improving Fundamentals

Recent market corrections have somewhat eased the overheated state of the stock market.

Joonki Cho, a researcher at SK Securities, said, "It appears that the KOSPI’s correction has been somewhat completed. Currently, the KOSPI is positioned at the 50% 'Fibonacci retracement' level between the recent high (June 12) and low (May 15), and unlike other markets, many technical indicators show that the overbought condition has mostly been resolved." Fibonacci retracement refers to the concept that when a stock price forms a trend, it tends to retrace by 23.6%, 38.2%, 50.0%, or 61.8% of that trend, with these ratios derived from the Fibonacci sequence.

Since the overheated condition has been alleviated, it is expected that future corrections will not be deep. Cho added, "While the market cannot be completely free from the influence of global markets such as the U.S., even if additional corrections occur, the decline is expected to be relatively limited."

With improving fundamentals, the market is expected to be supported. One researcher explained, "Although June Korean exports announced on the 1st fell short of expectations, the rate of decline narrowed compared to the previous month, marking the lowest decrease since the beginning of the year. This is a positive sign. The fact that the fundamentals surrounding the Korean stock market have passed the worst phase will help maintain the market’s downside rigidity going forward."

Kyungmin Lee, a researcher at Daishin Securities, also said, "Short-term volatility in July presents an opportunity to increase exposure. As fundamental momentum strengthens, the volatility caused by negative factors will be limited, and the upward trend will gain strength."

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