The Distant Santa Rally, Should We Try Dividend Futures?

KOSPI Falls Below 2500 Again
Year-End Rally Seen Unlikely
Dividend Stocks Highlighted as Year-End Alternative

With the KOSPI closing November below the 2500 mark, expectations for a Santa rally in December appear to be fading. While there may be attempts to restore stock prices after continued sluggishness, the upside is expected to be limited. There are opinions suggesting that investors should pay attention to dividend stocks as a strategy to respond to the year-end market with lowered expectations.

According to the Korea Exchange on the 2nd, the KOSPI closed November below the 2500 level on the 29th of last month. The KOSPI ended at 2455.91, down 48.76 points (1.95%) from the previous session. Over the past month, the KOSPI fell by 3.92%, showing a weak performance. Since dropping below the 2600 level at the end of October, the index continued its decline last month, even breaking below the 2500 level.

Projections indicate that a rebound in December will not be easy. Seungyoung Park, a researcher at Hanwha Investment & Securities, said, "We expect the KOSPI to move around the 2500 level until the end of the year," adding, "The possibility of a year-end rally in the domestic stock market is low."

Attempts to restore stock prices following the continued decline are expected, but the upward momentum is likely to be limited. Jiyoung Han, a researcher at Kiwoom Securities, analyzed, "December will shift into a phase of seeking catalysts to improve stock price resilience. However, it is regrettable that no visible signals have appeared in terms of earnings, which have the greatest influence as catalysts. Earnings forecasts continue to be revised downward, especially in key sectors such as semiconductors and automobiles, which will create resistance at the upper end of the market in December." She added, "While there remains stock price resilience that can raise the lows, the upper limit is expected to be constrained around the 2700 level." Kiwoom Securities projected the KOSPI range for December to be between 2420 and 2680.

With diminished expectations for a year-end rally, attention should be paid to dividend stocks as a strategy to respond to the market. Yoonjung Kim, a researcher at LS Securities, said, "The possibility of a significant index rise after December is limited, so the market is focusing more on the December dividend events," adding, "Following the implementation of corporate value-up programs, many companies have announced shareholder return policies, making expectations for dividend increases valid."

The KOSPI High Dividend 50 Index has risen 12.91% this year, and the KOSPI Dividend Growth 50 Index has increased by 10.63%. The KOSPI 200 Financial High Dividend TOP 10 Index surged 42.59%. During the same period, the KOSPI fell by 7.51%. Nogil Noh, a researcher at Shinhan Investment Corp., explained, "The highest-performing styles in the domestic stock market this year were high dividend stocks, momentum, and low volatility. This is partly due to high index volatility but also due to the value-up trend and increased shareholder returns by companies," adding, "Considering that more than half of the momentum style stocks are in the financial sector, which overlaps with high dividend styles and stocks, the best investment strategy in the turbulent domestic stock market this year was high dividend stocks."

In particular, year-end is a time when interest in dividend stocks grows stronger. Researcher Noh said, "Considering the year-end supply and demand patterns in financial investment and earnings estimates for 2024, now can be seen as an optimal time for dividend investing," adding, "This year, the KOSPI's net income is expected to be around KRW 173.3 trillion, a 71.5% increase compared to the previous year, based on consensus (average securities firm forecasts), which is a dividend surprise factor." The increasing focus on enhancing corporate value is also a variable that raises the possibility of a dividend surprise, as payout ratios are rising. Researcher Noh explained, "The dividend payout ratio has been on an upward trend, from 20.7% in 2021 to 24.7% in 2022, and 39.1% in 2023."

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