This Week's KOSPI Also 'Fundamentally Sensitive'... Individual Companies Move 'According to Earnings'

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[Asia Economy Reporter Lee Seon-ae] This week (18th-22nd), the domestic stock market is expected to respond sensitively to fundamentals as investors focus on corporate earnings announcements. Uncertainties such as China's COVID-19 lockdown measures and the U.S. Federal Reserve's (Fed) tightening outlook continue, suggesting that volatility will remain high.

On the 17th, the securities industry forecasted that the KOSPI will move within the range of 2680 to 2800 points this week. Key factors driving the rise include expectations for China's economic stimulus measures and positive earnings forecasts for Korean companies. Downside risks include uncertainties surrounding the spread of COVID-19 in China and lockdown measures.

Kim Young-hwan, a researcher at NH Investment & Securities, explained, "Investor attention is expected to shift to China's economic stimulus measures in response to economic slowdown pressures and first-quarter earnings announcements. Over the past two weeks, the first-quarter KOSPI operating profit forecast has been revised downward by 1.6%. This reflects a differentiation in earnings forecasts between sectors that could pass on increased raw material costs caused by the sharp rise in commodity prices in the first quarter and those that could not." He added, "While the stock index is expected to show a sideways trend, attention to individual corporate earnings will be high. It is necessary to focus on inflation beneficiaries (refining, non-ferrous metals) expected to have good first-quarter earnings and beneficiaries of the endemic transition following the new social distancing adjustment plan announced on the 15th (complete lifting of private gathering limits and business hour restrictions)."

Chinese President Xi Jinping has stated that the "Dynamic Zero COVID" (動態淸零, Dongtae Cheongnyeong) policy must be maintained, indicating that there will be no abrupt changes in China's epidemic prevention policy for the time being. On the 13th, President Xi said in Hainan Province, "Currently, COVID-19 remains severe worldwide, so epidemic prevention efforts cannot be relaxed." Shanghai partially eased its full city lockdown that had been in place since the 28th of last month. However, infections are increasing in other cities such as Beijing and Guangzhou, raising concerns about additional lockdowns.

Nevertheless, expectations for China's economic stimulus measures remain high. Chinese economic institutions have repeatedly forecasted that China's first-quarter GDP, to be announced on the 18th, will fall below 5%.

Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "The dual challenges of inflation and China's lockdown are impacting the domestic stock market. Cost burdens are a concern during the earnings season, and the index is likely to remain sluggish. Therefore, a relatively favorable approach would be to focus on individual sectors and stocks."

Hwang Ji-yeon, a researcher at Kyobo Securities, stated, "Although inflation appears to have peaked and recent investor sentiment is recovering, the rebound momentum still seems insufficient. Volatility in the commodity market continues, and geopolitical risks are likely to prolong, maintaining market instability. Ultimately, earnings and capital flows are crucial at this point."

Key weekly announcements to watch this week include China's first-quarter GDP (18th), China's March industrial production, retail sales, and fixed asset investment (18th), the Fed Beige Book (an economic outlook report published eight times a year) release (21st), Korea's March producer price index (21st), the U.S. March Conference Board Leading Economic Index (21st), and the U.S. and Eurozone April Markit PMI (22nd).

Meanwhile, last week (11th-15th), the KOSPI closed at 2969.06, down about 0.16% (4.33 points) from the previous week. It closed below the 2700 level due to concerns over Fed tightening. Although expectations of having passed the inflation peak briefly lifted the index, rising U.S. Treasury yields negatively affected investor sentiment.

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