Value context and insight. lkm@koreatimes.co.kr
Will range-bound KOSPI find bullish momentum?
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By Lee Kyung-min
The short-term future course of the country's major local bourse KOSPI faces a mixed outlook, complicated by rate cut prospects for the U.S. and Japan as well as cooler-than-expected macroeconomic data associated with a sustained economic slowdown, market watchers said Monday.
Pessimists say foreign cashing out and greater exposure to external shocks can trigger an extended market tumble, amplified by a lack of factors for upward momentum in economic and financial market conditions locally and globally.
Optimists say the local bourse will track up soon, buoyed largely by the widely expected monetary easing of the central banks of major advanced economies and robust earnings of tech firms listed on the U.S. bourse.
Also coming into play is whether and by how much the Korean bourse will continue decoupling from its U.S. peer, as tracked by the KOSPI-Nasdaq correlation coefficient on a scale of -1 and 1. The closer the figure is to 1, the stronger the tendency of coupling is. The closer it moves toward -1, the more likely the two indexes move in opposite directions. The figure registered a month-to-date 64-month high of 0.722, Thursday, amid a lackluster financial market.
“The main bourse KOSPI underwent a steep adjustment of nearly 200 points in two weeks, just short of touching 2,900 points,” Eric Lee of Daishin Securities said in a report, Monday. The KOSPI closed at 2,765.53 points, up 1.23 percent on the day.
"The retreat was influenced by profit realization of short yen position holders and long Big Tech positions, aided by a strong rebound in the Japanese currency. Market expectations of an imminent rate cut were among the factors for the downtrend.”
The recent rapid appreciation of the yen will take a breather, conditioned upon the Bank of Japan’s rate staying on hold, in his view. Also to recharge the risk-on market sentiment is the potential easing by Federal Open Market Committee (FOMC) the rate-setting body of the U.S. Federal Reserve.
The assessment strengthens his case for the KOSPI to recover to a range of 2,680 points and 2,930 points in August.
Sangsangin Investment & Securities researcher Kim Young-koo anticipates a slightly lower ceiling of 2,850 points.
The correction pressure of the local and global equity market was elevated, in his view, due to two competing narratives about the financial market conditions and economic developments shortly before the end-July earnings reports.
The potential return of former U.S. President Donald Trump and subsequent policy shifts gained traction, coupled with an assassination attempt on him, he said.
“Previous forecasts of a soft landing of the economy were revisited, prompted by a series of market and economic indicators showing signs of weakness associated with economic downturn.”
Among factors for the bullish local equity market is an expected September cut by the Fed. A less restrictive monetary policy usually translates to a recovery in investor preference for risky assets.