Chaotic Market... Need to Reshape Investment Strategies

Increased Market Volatility
Higher Difficulty in Response
Limited Additional Decline Expected
Effective to Buy on Corrections

With continuous negative factors, market volatility is expanding. The global stock markets are undergoing corrections due to overlapping geopolitical risks from the Middle East and retreating expectations for interest rate cuts. However, experts view the possibility of further declines as limited and advise establishing a buying strategy during corrections by increasing weights in sectors or stocks with rising profit forecasts.

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As of 9:50 a.m. on the 22nd, the KOSPI recorded 2,609.16, up 17.30 points (0.67%) from the previous session. The KOSDAQ rose 4.96 points (0.59%) to 846.87. Both indices showed early gains around 1%, but the upward momentum somewhat narrowed.

With the rebound, the KOSPI regained the 2,600 level, but the market’s zigzag movement of rising and falling repeatedly has increased the difficulty of formulating investment strategies. The KOSPI dropped more than 2% on the 16th last week, then recovered nearly 2% on the 18th, only to fall over 1% on the 19th, dropping below 2,600, before reclaiming the 2,600 level the next day. Volatility has been continuously expanding recently. The KOSPI 200 Volatility Index (VKOSPI), known as the “fear index,” rose to 25.29 points intraday on the 19th, marking the highest level in 1 year and 6 months since October 17, 2022, when the Legoland incident caused market turbulence.

Daeseok Kang, a researcher at Yuanta Securities, said, “The recent atmosphere in global stock markets is unusual. Last week, the KOSPI fell 3.4%, marking four consecutive weeks of decline, and the U.S. Nasdaq index also declined for four straight weeks. In particular, the weekly plunge of 5.5% last week is causing concerns about declines centered on tech stocks.”

Calculating the drop from the peak since the beginning of the year, both developed and emerging markets have fallen by about 5% on average. Researcher Kang said, “Looking only at the drop, a 5-6% correction is not severe, but Middle East geopolitical factors, recent interest rate hikes, and dollar strength seem to evoke the nightmare of August to October last year. Ultimately, investors’ sentiment has deteriorated rapidly, recalling that nightmare, despite the scale of the correction or volatility.” During the three months from August to October last year, the S&P fell 8.6%, and the KOSPI dropped 13.5%, respectively.

However, the market views further declines as limited. Kyungmin Lee, a researcher at Daishin Securities, said, “The supply-demand entity causing the sharp fluctuations during the KOSPI’s fall below 2,600 was foreign futures trading. Foreigners have recorded large net sales of 6.1 trillion won in the futures market since the 3rd. Foreign futures selling is judged to be near its climax, and the U.S. short-term macro risk index exceeding 0.8 suggests that the short-term risk-off signal is passing its peak, which should put a brake on the KOSPI’s sharp decline.”

There is an opinion that buying responses are necessary during corrections. Daejun Kim, a researcher at Korea Investment & Securities, said, “If the KOSPI falls further, it should be responded to with phased buying. The 12-month forward price-to-earnings ratio (PER) of 10 times corresponds to 2,530 points, and below this level, price attractiveness is high. The PER of 10 times acted as a strong support line during the short-term bear markets in October last year and January this year.” Regarding sector strategies, attention should be paid to sectors or stocks with large declines or favorable earnings. Researcher Kim explained, “Choosing those with large declines but rising earnings forecasts would be a comfortable choice. Semiconductors, hardware, automobiles, and utilities, which have high first-quarter operating profit forecasts but experienced large declines, are the targets to watch.”

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