[Weekly Market Outlook] KOSPI Stumbles Amid Interest Rate Hike Concerns... "Focus on Earnings Stocks"

July 3-7 KOSPI Drops Over 2%
Fed Confirms July Rate Hike... Focus on Additional Increases
"Semiconductors, IT, Aviation, Leisure Stocks Expected to Improve Earnings"

This week (July 3rd to 7th), the domestic stock market ended on a downward trend, reflecting concerns over additional tightening by the U.S. Federal Reserve (Fed). Next week’s stock market is also expected to reflect worries about interest rate cuts, but with the earnings season underway, investors are anticipated to increase their focus on earnings-related stocks.

[Image source=Yonhap News]

According to the Korea Exchange on the 9th, the KOSPI fell 2.10%, from 2580.89 to 2526.71 this week. Except for the 3rd, the market closed lower every day. In the KOSPI market, individual investors alone purchased stocks worth 1.1828 trillion KRW, while foreign and institutional investors sold net amounts of 24 billion KRW and 1.3281 trillion KRW, respectively. Foreign and institutional investors showed net selling every day except for one.

The rise in U.S. Treasury yields due to concerns over additional Fed tightening pulled the index down. The minutes of the June Federal Open Market Committee (FOMC) meeting, where most members agreed on further rate hikes within the year, also negatively impacted the index. The deepening conflict between the U.S. and China added downward pressure on the index. Domestically, the delinquency rate of Saemaeul Geumgo sharply rose to the 6% range, raising concerns that a U.S. small and medium-sized bank bankruptcy crisis might occur in Korea as well, which dampened investor sentiment. During this period, the KOSDAQ index fell by about 1%.

This week, semiconductor stocks failed to maintain their strength. Samsung Electronics fell 3.85% over the week, dropping from the 70,000 KRW range to 69,900 KRW. Although Samsung Electronics announced earnings on the 7th that exceeded market expectations, foreign and institutional investors took profits, causing the stock to fall about 2% in one day. SK Hynix also dropped more than 3% during the same period. On the other hand, secondary battery-related stocks continued to rise. Following news that Tesla’s second-quarter sales surged, domestic secondary battery stocks reacted positively. Over the week, Samsung SDI rose 2.5%, LG Energy Solution (0.9%), POSCO Future M (11.6%), EcoPro BM (10.2%), and EcoPro (27%) all showed strong gains.

Next week, the domestic stock market is expected to continue reflecting concerns over interest rate hikes. NH Investment & Securities’ KOSPI forecast has dropped to the lower bound of around 2490. The Bank of Korea’s Monetary Policy Committee meeting is scheduled for the 13th, with a rate freeze decision being the most likely outcome.

While the consensus is that a rate hike in July is almost certain, market attention is focused on whether hikes will continue in September. The June employment data released on the night of the 7th showed job growth below market expectations, but wage growth was unusually high, further intensifying concerns about rate hikes. A key indicator to watch closely is the U.S. Consumer Price Index (CPI) for June, to be released on the 12th. The June CPI is expected to be around 3%, and if the figure exceeds expectations, concerns about additional rate hikes are likely to expand. Kim Young-hwan, a researcher at NH Investment & Securities, said, “At the expected June CPI level, it is difficult to induce a change in the Fed’s stance,” adding, “Concerns about Fed tightening will exert some downward pressure on the stock market.” Regarding U.S.-China tensions, U.S. Treasury Secretary Janet Yellen’s visit to China is underway, but no significant changes in U.S. export control policies toward China have been detected.

Investors are expected to increase their interest in stocks related to earnings improvements. With Samsung Electronics’ earnings announcement marking the start of the earnings season, corporate earnings reports are expected to pour in from the third week of July. Experts suggest focusing on stocks that have confirmed a bottom in second-quarter earnings and are expected to improve from the third quarter onward. Han Ji-young, a researcher at Kiwoom Securities, said, “Since further deterioration in front-end demand is limited, it is necessary to focus on sectors with expectations of earnings bottoming out, such as semiconductors, IT hardware, and IT home appliances,” adding, “It is also positive to pay attention to reopening themes like airlines and leisure during the summer peak season, as well as steel and machinery themes related to Ukraine reconstruction.”

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