Daishin: "KOSPI with an Open Ceiling, Headed for 3,500?...Caution After FOMC"

Daishin Securities stated on the 15th that the KOSPI index has room to rise to the 3,500 level, buoyed by recent policy and industry optimism, but also warned of a possible correction in the fourth quarter. This week, the September Federal Open Market Committee (FOMC) meeting of the United States Federal Reserve, which has been a key driver of global stock market gains including Korea, is also scheduled. If the Fed's dot plot, which indicates future interest rate projections, fails to meet market expectations, a rebound in bond yields and the dollar, as well as increased downward pressure on the stock market, are expected to be inevitable.

Yonhap News Agency

Lee Kyungmin, a researcher at Daishin Securities, said in Monday's report, "Weekly Quantitative Strategy Plan: KOSPI with an Open Ceiling, Moderation is Key. What Comes After the September FOMC?" that "just as policy expectations peaked following President Lee Jaemyung's 100-day press conference, we should be wary of the possibility that expectations for a U.S. rate cut will also peak after the September FOMC."

First, regarding the recent movement of the KOSPI, Lee noted, "Not only did it break out of the range-bound pattern that persisted for two months, but it also continued to hit record highs, coming close to the 3,400 level. This has expanded the upside potential to the 3,500 range." Previously, Daishin Securities had projected in its revised outlook for the second half of the year that the major upward trend would continue at least through the first half of 2026.

However, Lee pointed out, "Upon reaching the 3,500 level, valuation and price pressures may intensify, so the possibility of a correction in the fourth quarter should be considered." He explained that the price-to-book ratio (PBR), based on a 12-month forward basis, exceeds the three-year average plus standard deviation, and the trailing PBR is also at the 3,485 level. "While there is still room for further gains, any level above 3,500 is likely to be an overshoot," he added. "The possibility of an overshoot remains, but a medium- to short-term correction afterward is inevitable."

He also emphasized that expectations for monetary policy will likely peak after the September FOMC meeting this week. "With expectations for rate cuts already priced in (three times within this year, and a total of six by 2026), we must consider the market's reaction to the FOMC results to be announced early morning on the 18th," he said.

In particular, regarding the dot plot to be released alongside the rate decision, he said, "If it fails to meet market expectations, a rebound in bond yields and the dollar, as well as increased downward pressure on the stock market, will be unavoidable." Even if expectations are met, since both the U.S. and Korean markets have already been hitting record highs on rate cut hopes, the influence as a short-term catalyst will be limited. He also did not rule out the possibility of heightened short-term volatility depending on Federal Reserve Chair Jerome Powell's press conference immediately following the monetary policy statement.

Furthermore, Lee analyzed, "After the September FOMC, once the strength and extent of rate cuts through 2026 are confirmed, the impact of worsening U.S. employment and rising economic uncertainty on the stock market could increase," adding, "Whether the financial market reflects a recession scenario will be a key factor in determining the direction of the stock market in the fourth quarter." In August last year, the so-called "Sahm's rule," which detects U.S. recessions based on the unemployment rate, led the market to preemptively price in recession fears.

Accordingly, Lee advised investors to be wary of increased short-term volatility above the 3,400 level on the KOSPI and to refrain from aggressive buying. "While holding back on market responses, it is effective to reduce exposure to sectors that have seen significant gains and increase exposure to still-undervalued sectors as a trading strategy," he said. "This is an opportunity to strengthen rotation strategies, not only from a short-term trading perspective but also with a view toward breaking through historic highs in the future." Specifically, he recommended paying attention to healthcare, software, steel, non-ferrous metals and lumber, retail (distribution), hotels and leisure, banks, and securities stocks.

He added, "From below the 3,200 level on the KOSPI, investors should shift to a buying perspective," explaining, "Notably, automobiles, secondary batteries, internet, pharmaceuticals, and biotechnology are sectors where increasing exposure by taking advantage of short-term fluctuations is possible at current prices and index levels." For semiconductors, shipbuilding, machinery, defense, and domestic and overseas consumer stocks, he suggested that since a phase of medium- to short-term overheating and supply absorption is underway, it is effective to approach these sectors with a strategy of phased buying during periods of increased short-term volatility.

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