"This Week's Domestic Funds Likely to Remain Cautious... Responding with Software Sector"

Foreigners' Net Selling for 3 Consecutive Days from the 4th
Whether Foreigners Will Return
Focus on CDS Premium and Foreign Currency Bonds Spread

On the 9th, Korea Investment & Securities anticipated that domestic funds, including individual investors, would maintain a cautious stance amid ongoing political uncertainty. They added that for the stock market to rebound, foreign investors ultimately need to step in, and to gauge their return, attention should be paid to the credit default swap (CDS) premium and the spread on foreign currency bonds. From a response perspective, they advised focusing on software sectors such as platforms that maintain stable momentum.

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In a report released that day, Kim Dae-jun, a researcher at Korea Investment & Securities, stated, "The political uncertainty, which no one predicted, has caused the stock market, which was hoping for a recovery, to lose its direction once again. This trend is likely to continue this week as well," and analyzed, "Domestic funds, including individuals, are expected to maintain a cautious stance due to systematic risk burdens."

For the Korean stock market to rebound, foreign investors ultimately need to take action, but the situation is not optimistic. Since the lifting of the emergency martial law on the 4th, foreign investors have sold stocks for three consecutive days. The scale has already exceeded 1 trillion won. Researcher Kim noted, "Of course, the financial authorities' market stabilization measures have limited the index's decline. However, if foreign investors continue their net selling trend, market volatility is inevitable," and pointed out that "the biggest concern for foreigners regarding the future stock market will be whether the economic fundamentals are damaged."

Looking at the economic fundamentals, there has been no movement yet from global credit rating agencies such as S&P. Regarding this, he said, "However, credit ratings change over a very long term, so it is difficult to capture rapidly changing market sentiment. This is why new indicators are needed."

From this perspective, he emphasized the need to focus on the CDS premium and the spread on foreign currency bonds, which can be monitored daily. These two indicators reflect national creditworthiness and economic stability. The former is the insurance premium to hedge against default risk, and the latter is the additional interest rate the Korean government offers over the benchmark U.S. Treasury yield when issuing bonds in foreign currency.

Researcher Kim stated, "There have been no sudden changes yet in the CDS premium and foreign currency bond spread. However, they are gradually rising, which could increase stock market volatility," and advised, "In the process, if the exchange rate rises again, overseas funds may show outflow trends, so it is essential to closely watch the direction of these indicators."

From a response standpoint, he suggested following sectors that maintain stable momentum. Researcher Kim predicted, "After the U.S. employment data release in November, U.S. Treasury yields have fallen, and Korean government bond yields may follow a similar trend. This means the pressure from rising interest rates has eased," and added, "As a result, among sectors, interest may continue in software such as platforms that are unaffected by political risks and respond positively to falling interest rates."

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