Ongoing Volatility Warning... "Need to Respond with Defensive Stocks and Bonds"

Recent stock markets, which have partially recovered from a sharp decline in a short period, are more likely to exhibit volatility rather than continue rising, according to analysis. This is based on the judgment that it will take time before indicators reassuring about economic recession and inflation emerge. Accordingly, the securities industry advises responding with defensive stocks and bonds for the time being.

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According to the Korea Exchange on the 22nd, the KOSPI closed at 2701.13 the previous day. It rose 10.62% over the past 11 trading days. This marks a rebound, recovering more than half of the decline from last month's peak to the 'Black Monday' on the 5th in one go.

However, despite this rebound, securities firms expect the stock market to show volatility or take a breather for a certain period rather than continue rising. Joon-ki Cho, a researcher at SK Securities, said, "For the stock market to rise further, indicators confirming no economic recession and no resurgence in inflation are needed," adding, "There is no schedule to confirm these factors for the time being." He continued, "Although concerns about the unwinding of the yen carry trade, which had been a burden on the market, have eased, we should keep in mind that the market may take a short break. If such a pause occurs, opportunities may arise in sectors and stocks that have been neglected so far."

Some advise responding with defensive stocks due to the risk of a market decline. Dae-jun Kim, a researcher at Korea Investment & Securities, said, "Recently, the direction of commodity prices such as crude oil and gold points more toward a slowdown rather than an expansion of economic momentum," adding, "Since the stock market generally follows the overall economic trend, it is advantageous to use a defensive strategy when responding to the market." He also suggested, "We are positive on sectors like insurance and food and beverages, which have relatively low stock price volatility, and short-term trading in IT-related stocks is also possible to enhance returns."

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Furthermore, there is analysis that a base interest rate cut could increase the investment attractiveness of sectors or assets other than AI-related stocks, which have led the market so far. Dae-seung Kang, a researcher at DB Financial Investment, said, "Recently, in the U.S. stock market, profit-taking on IT companies has expanded, while the Dow Jones Index, which has a relatively small IT weighting and a high proportion of economically sensitive stocks, has shown strength," adding, "If interest rate cuts become full-scale in the future, funds that have been concentrated in IT may move to other sectors or assets." He continued, "The change in the U.S.'s high interest rate environment, which has lasted about a year, means a change in the investment environment. Therefore, investment strategies must also change," and analyzed, "We should be cautious about increased market volatility and rather than hastily judging the stock market direction, it is reasonable to invest in bonds that can directly benefit from interest rate cuts."

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