Is 'Samcheonpi' Possible This Second Half?... Volatility Warning on Summer Rally Prospects

‘Pause vs Upward Momentum’ Tense... Volatility Inevitable
Fed Rate Hikes, Economic Recession, China Stimulus Measures as Variables

The domestic stock market, which experienced a rally in the first half of this year, is drawing attention as to whether it can continue its upward trend in the second half. In particular, opinions in the securities industry are divided on whether a summer rally will occur this summer, with some voices warning to be cautious of volatility. However, overall, the KOSPI outlook for the second half is rising. Expectations for an earnings rally are growing, and the forecast of 'hago (lower at the start, higher later)' is prevailing.

Excessive Expectations for the Summer Rally Are a No-Go

The 'summer rally' season, when stock prices rise in summer, has returned, but views in the securities industry are divided. First, there is an opinion not to have excessive expectations for the summer rally. Since the market has rallied throughout the first half, it is judged that it will be difficult for prices to rise further in July and August. Additionally, there are forecasts that the U.S. economy will enter a recession starting in the second half of this year. Accordingly, a pause or consolidation phase is expected.

Seosangyoung, a researcher at Mirae Asset Securities, said, "Originally, the economic recovery was expected by the end of the year, but the recovery speed in the U.S. and Europe has slowed, pushing it to next year," adding, "The timing of the stock price rebound, a leading indicator, is also being delayed, so it is difficult to expect a summer rally." He continued, "The possibility of additional interest rate hikes by the U.S. Federal Reserve (Fed) and other central banks is also a variable," and "Since the KOSPI rose more than expected in the first half, profit-taking selling may emerge."

In particular, the July interest rate hike is considered a major variable. Lee Jaeseon, a researcher at Hyundai Motor Securities, explained, "Rather than an immediate rise or fall in stock prices, the market will show a dull trend for a while," and "Stock prices are expected to move after the July Federal Open Market Committee (FOMC) decision." Kim Younghwan, chief researcher of the investment strategy department at NH Investment & Securities, also predicted, "Due to the Fed's additional rate hikes and the U.S. government's large-scale bond issuance, the market will first undergo a correction and then rebound on the back of semiconductor companies' earnings improvement and the resumption of U.S.-China dialogue."

There are also opinions that it is okay to have expectations for the summer rally. Kim Daejun, head of the investment strategy team at Korea Investment & Securities, predicted that the KOSPI will rise this summer due to the recovery of domestic export growth and improvement in semiconductor companies' profits. Lee Kyungmin, a researcher at Daishin Securities, said, "Although stock prices have recently undergone short-term corrections, it is not because of poor earnings but because the stock market was overheated in the short term and some volume is being absorbed," adding, "Export growth has turned positive, and the negative margin of average export amounts is rapidly decreasing, so a turnaround in the business environment may appear in the Q2 earnings announcements." Lee Kyungsoo, head of the research center at Meritz Securities, diagnosed, "The stock market will show an upward trend due to expectations for corporate earnings improvement, the Fed's pause in rate hikes, and the start of a technology stock cycle centered on artificial intelligence (AI)."

However, caution is advised due to concerns about increased volatility. The July stock market is expected to show volatility depending on various macroeconomic indicators amid concerns of short-term overheating following the first half's rally. Kim Yumi, a researcher at Kiwoom Securities, said, "Short-term burdens and fatigue about stock price levels are accumulating, stimulating market participants' desire for profit-taking, which is limiting the market's upward momentum," and "We must prepare for the emergence of volatility amid major events such as inflation, Fed tightening, and the earnings season." Yoon Changyong, head of the research division at Shinhan Investment Corp., also pointed out, "If the Fed raises the benchmark interest rate twice, volatility expansion is inevitable." Yoon Seokmo, head of the research center at Samsung Securities, also sees the possibility of rate hikes stimulating volatility expansion and predicted, "The domestic stock market will likely pause (period adjustment) in summer, with a higher probability of decline."

However, many opinions suggest maintaining a strategy to increase weighting if a correction occurs. Researcher Kim Yumi said, "Even during the period adjustment phase, performance differentiation among sectors will appear, so I recommend a strategy focusing on sectors with active earnings momentum such as semiconductors, IT hardware, aviation, defense, electric wire, and infrastructure."

Maximum KOSPI Upper Limit Forecast for the Second Half Is 3000

The number '3000' has appeared in securities firms' research centers forecasting the KOSPI for the second half, increasing expectations for 'hago.' However, this is the highest forecast. Research centers with lower forecasts cited variables such as Fed interest rate hikes, recession in developed countries, and the speed of China's economic recovery.

The most optimistic view came from DB Financial Investment. DB Financial Investment forecasted the highest KOSPI upper limit of 3000 among domestic securities firms. KB Securities (2920), Meritz Securities, and IBK Investment & Securities (2900) set the upper limit above 2900. Korea Investment & Securities and Kiwoom Securities viewed 2800 as the upper band. Daishin Securities suggested 2780, Hyundai Motor Securities 2760, NH, Samsung, and Hi Investment & Securities 2750, and Shinhan and Hana Securities 2700.

Researcher Kang Hyunki of DB Financial Investment said, "The stock market will show an upward trend in the second half of this year," adding, "A financial market may appear due to the widening of the short- and long-term interest rate gap, and there is a possibility of an earnings market progressing due to improved purchasing power, so contrary to concerns, an unexpectedly strong market will unfold."

Samsung Securities forecasted that the KOSPI will settle at the 3000 level next year due to expectations for semiconductor companies' earnings improvement. The rebound of major semiconductor stocks such as Samsung Electronics, ranked first, and SK Hynix, ranked third, which account for 25.3% of the total KOSPI market capitalization, is judged to be a decisive variable for the KOSPI index trend in the second half. Researcher Kim Yonggu of Samsung Securities explained, "The global AI value chain-related mid- to long-term optimism, stimulated by Nvidia's Q1 earnings surprise, diluted the valuation burden and potential earnings uncertainty of domestic semiconductor leaders, leading to large-scale foreign investor interest and resilient stock price rises," and "This is why the market outlook for the second half was raised."

Korea Investment & Securities also judged that the sectors to watch most in the market are 'semiconductors' and 'automobiles.' These two sectors are expected to lead the stock market in the second half, and with the export boom and recovery potential increasing, earnings momentum could be further strengthened.

However, some securities firms maintain a conservative view as uncertainty still exists in the market. Factors for KOSPI decline include the number of additional Fed rate hikes and recession in developed countries. Since the domestic stock market is led by technology stocks sensitive to interest rates such as semiconductors, secondary batteries, and IT, rate hikes are considered negative for the domestic market. Moreover, the atmosphere that the Fed's rate hike cycle has effectively ended has shifted to the assumption of additional hikes, with the question being how many times. Due to concerns about additional U.S. rate hikes and the minimal effect of China's reopening, the KOSPI is expected to remain in a box range. Lee Kyungmin of Daishin Securities' investment strategy team diagnosed, "Due to China's economic recovery and semiconductor industry improvement, a differentiated rebound is expected until the third quarter, but as the year-end approaches, concerns about economic slowdown in developed countries will limit the stock market's upper range, making a box range inevitable."

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