Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Korean stocks to stay range-bound in post-holiday sessions
A man walks past an electronic board of the benchmark KOSPI at the Korea Exchange in Yeouido, Seoul, Jan. 17. Yonhap
By Yi Whan-woo
Investors to remain on sidelines while watching market-stimulus plans, timing of Fed rate cut
Korean stocks are expected to remain range-bound after the long Lunar New Year weekend that runs from Feb. 9 to 12, as investors will be cautious about buying more shares until the government’s plans to boost undervalued stocks materialize, according to analysts.
Experts said a lowered possibility of the U.S. Federal Reserve’s rate cut in March is also prompting investors in Seoul to remain cautious.
“The benchmark KOSPI in February will be noted for not straying outside a particular range,” Kiwoom Securities analyst Han Ji-young said, forecasting that the country’s main stock index will stay between 2,420 points and 2,620 points.
The suggested range aligns with the pattern of the KOSPI this year, which ascended above 2,600 points at one time and dropped below 2,500 points at another.
The ascension was associated with the Financial Services Commission’s (FSC) plan to introduce a set of measures aimed at countering the so-called "Korea discount."
It refers to the undervaluation or higher-risk premium of Korean stocks compared to their global peers due to regulatory policies, corporate governance and geopolitical risks, among other factors.
The FSC first addressed its plan to counter the Korea discount in mid-January and will unveil details within this month. The commission is anticipated to ask listed firms to enhance self-assessment to foster an investor-friendly stock market environment.
Hwang Joon-ho, an analyst at Sangsangin Investment & Securities, said, “The government’s initiative will provide growth momentum for the KOSPI.”
He noted that after mid-January, investors flocked to the KOSPI, where many of its listed stocks are undervalued and had a price-to-book ratio (PBR) of around 0.92 at the end of 2023.
PBR measures whether a company’s share price is undervalued, with a number below 1 indicating it may be below a fair value.
The KOSPI’s PBR being less than 1 was therefore regarded as an opportunity to reap huge gains.
The buying spree, however, was thwarted as Fed Chair Jerome Powell said the U.S. central bank is not likely to lower its policy rates in March.
His comment came after the Fed shifted to a dovish monetary policy in December and suggested multiple cuts in 2024. However, it did not specify when the cut will begin.
According to the CME FedWatch Tool, a measurement developed by Chicago-based financial services company CME Group, financial markets see a 20 percent chance the Fed will cut rates in March and a 71.3 percent chance it will happen in May.
“Such lowered expectations for the U.S. rate cuts can put downward pressure on the KOSPI as investors can make gains from putting their money in U.S. bank accounts rather than investing in Korean stocks,” Hwang said.
He noted that the Fed's benchmark lending rate is currently at a 23-year high, ranging between 4.75 percent and 5 percent, compared to the Bank of Korea's rate of 3.5 percent.
Asked about recommended stocks, Kim Young-hwan, an analyst at NH Investment & Securities, said that semiconductors, renewable energies, cosmetics and other export-centered sectors “can possibly draw investors’ attention” as outbound shipments are rebounding.