[MarketING] Will the April Stock Market Break Out of the Box Range?

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The KOSPI continues its upward trend for the fifth consecutive day. With easing concerns over banking risks and tightening, there are forecasts that the market will break away from the two-month-long correction in April.

As of 10:30 a.m. on the 3rd, the KOSPI was at 2481.38, up 4.52 points (0.18%) from the previous day. The KOSDAQ rose 4.78 points (0.56%) to 852.30. Although the KOSPI showed weakness in the early trading hours, it turned upward and recovered above the 2480 level. The KOSDAQ also rebounded after a day and climbed back above the 850 level.

This strength is attributed to the rise in the U.S. stock market last week, following easing inflation concerns. On March 31 (local time) at the New York Stock Exchange, the Dow Jones Industrial Average rose 1.26%, the S&P 500 increased by 1.44%, and the Nasdaq rose 1.74%.

The easing inflationary pressures led to the index gains. The February Personal Consumption Expenditures (PCE) price index rose 0.3% month-over-month, lower than January's 0.6%. Year-over-year, it was 5.0%, also down from January's 5.3%. The core PCE price index increased 0.3% month-over-month, below January's 0.5%, and declined from 4.7% to 4.6% year-over-year. Han Ji-young, a researcher at Kiwoom Securities, said, "The U.S. stock market closed higher supported by the easing banking sector crisis, slowing PCE inflation, and declining inflation expectations. The PCE price index slowed more than expected, turning into a positive factor, and the University of Michigan's March inflation expectations at 3.6% fell below the forecast of 3.8%, indicating reduced sensitivity to inflation. This drove the U.S. stock market's strength, especially in growth stocks that had been vulnerable to inflation."

Compared to the significant rise in the U.S. stock market, the domestic market moved within a narrow range, limiting gains. Seo Sang-young, a researcher at Mirae Asset Securities, said, "The strong performance of tech stocks in the U.S. market due to falling inflation and the inflow of positive corporate news are positive for the Korean market. However, some of the index gains are believed to be driven by quarter-end window dressing (portfolio adjustment buying), so the impact on the index rise may be limited."

After the KOSPI's strong performance in January, it corrected in February due to expanded inflation concerns and tightening fears, and continued to adjust in March amid banking risks. However, forecasts suggest the market will break out of the correction phase and show strength again in April.

Kim Dae-jun, a researcher at Korea Investment & Securities, said, "Although the correction lasted for two consecutive months, changes are expected from April. Global liquidity is expected to flow back into emerging markets showing solid recovery, and the Korean stock market will also benefit." He added, "The Federal Reserve's monetary tightening is effectively entering its final stage, easing financial burdens, which is positive. Although corporate earnings are not yet promising, optimism that earnings forecasts will rebound from the upcoming second quarter will support stock prices."

Tightening concerns that suppressed the market since February are expected to ease. Labor Gil, a researcher at Shinhan Investment Corp., said, "The Fed did not raise its terminal rate forecast at last month's Federal Open Market Committee (FOMC), signaling the end of the tightening cycle. They intend to monitor the banking crisis impact, and since it is difficult to confirm the immediate effects of the banking crisis, tightening concerns will temporarily pause in April."

Banking risks are also expected to influence the pace of tightening. One researcher noted, "The banking sector crisis tightens credit conditions, which may slow real consumption. This is expected to ease demand-side inflationary pressures and weaken the Fed's rationale for tightening, lending credibility to this forecast. The absence of an FOMC meeting in April will also reduce Fed tightening concerns."

However, the elevated valuation of the KOSPI remains a burden. Lee Kyung-min, a researcher at Daishin Securities, explained, "The KOSPI surpassed the 2470 level, approaching the year's high, with the 12-month forward price-to-earnings ratio (PER) rising to 13.24 times. Although the index is lower than the late January peak, the lowered earnings forecasts have increased short-term valuation pressure." He added, "For further gains, a rapid turnaround in the economy and corporate earnings needs to become visible."

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