[Market ING] KOSPI Fails to Hold 4,100 Level, Focus Shifts to Nvidia Earnings

Weekly KOSPI Expected Range: 3,900?4,250 Points

This month, the KOSPI, which had shown sluggish performance amid increased volatility, appeared to regain its upward momentum by recovering most of its losses from the previous week. However, on November 14, it experienced a sharp decline and failed to hold the 4,100-point level. The retreat in expectations for an interest rate cut and concerns about an overvaluation of artificial intelligence (AI) stocks are contributing to the increased volatility in the KOSPI. The market is expected to closely monitor Nvidia's earnings announcement scheduled for this week.

Yonhap News Agency

Last week, the KOSPI rose by 1.46% and the KOSDAQ by 2.41%, respectively. The KOSPI continued its upward trend last week, recovering the previous week's losses, but ended the week below the 4,100 mark after another sharp drop on November 14. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., explained, "On November 14, the KOSPI fell by 3.8% and the KOSDAQ by 2.2%. Although the U.S. government shutdown (temporary suspension of government operations) was resolved, hawkish remarks by Federal Reserve officials increased uncertainty over a December rate cut, and the aftermath of Kioxia's sharp decline weighed on the AI value chain. Profit-taking in major domestic semiconductor stocks led to a break below the '100,000-won Samsung Electronics' and '600,000-won SK Hynix' levels."

Amid a lack of U.S. economic data, uncertainty over a December rate cut by the Federal Reserve has increased, and concerns about the overvaluation of AI stocks persist. Jo Ain, a researcher at Samsung Securities, stated, "The Federal Reserve has based its monetary policy decisions on data, but during the shutdown, the collection and release of economic data were suspended, making it difficult to assess the economy. As a result, recent Fed officials have expressed uncertain stances regarding rate decisions or made somewhat hawkish remarks, emphasizing the need for caution in lowering rates." She added, "Uncertainty over a Fed rate cut has amplified investors' concerns about an overheating of AI stock prices, as a continued accommodative rate environment is crucial for sustaining their valuations." She further noted, "A significant portion of AI companies' investment funding is structured through leverage, such as bond issuance and private credit, making them highly vulnerable to rising interest rates."

Accordingly, the market is expected to focus on the minutes of the October Federal Open Market Committee (FOMC) meeting and Nvidia's earnings announcement scheduled for this week. Lee Kyung-min, a researcher at Daishin Securities, said, "For the time being, the market will undergo a phase of cooling off and digesting supply," adding, "The October FOMC minutes and Nvidia's earnings results are important because they will provide the first conclusions regarding the retreat in expectations for a rate cut and the AI bubble controversy, both of which fueled KOSPI volatility in early November."

Na Jeong-hwan, a researcher at NH Investment & Securities, noted, "According to the CME FedWatch, the probability of a rate cut at the December FOMC is 51.9%, down from 69.6% a week earlier. As inflation and employment indicators are released following the end of the U.S. government shutdown, the market's sensitivity to changes in economic data could increase." He added, "In particular, as recent Fed officials have expressed concerns about inflation, the importance of upcoming inflation data will be highlighted." NH Investment & Securities projected the KOSPI's expected range for this week to be between 3,900 and 4,250 points.

This week's major events include the release of U.S. October industrial production data on November 18 and Nvidia's earnings announcement on November 19. On November 20, the minutes of the U.S. October FOMC meeting will be released, while on November 21, Korea's export data for November 1-20 and the U.S. S&P Global manufacturing and services Purchasing Managers' Index (PMI) for November will be announced.

Kang, the researcher, stated, "Following Kioxia's earnings announcement, which fell short of market expectations, AI investment sentiment has further weakened," adding, "Nvidia's earnings announcement could serve as a turning point for the market."