Will Santa Rally come to Korea?

By Lee Kyung-min

Market analysts are split over whether the local bourse will end the year 2018 on a high note with a strong “Santa Claus rally,” an increase in the stock market around Christmas in late December.

The possibility is high given the recent 90-day ceasefire of trade conflict between the U.S. and China, according to Eric Lee, chief strategist at Daishin Securities.

“The conflict between the world's two largest economies has subdued, albeit temporarily, and the market could take a positive sign out of it,” he said.

“Now that the global trade tension ― one of the greatest risk factors in the stock market fluctuation ― has somewhat eased, the tumbled stock market can find momentum for a short-term bullish run until the end of the year.”

The benchmark KOSPI plunged 13 percent in October alone, as foreign investors unloaded stocks worth 2 trillion won ($1.8 billion). In the same month, Kosdaq dropped 21 percent.

While concerns remain that the upcoming Dec. 20 U.S. Federal Open Market Committee (FOMC) meeting could dampen the investor sentiment, the already suffered stock market will not take a significant nosedive, he added.

“It is almost a given that the U.S. Fed will raise the key interest rate, as expected by financial circles and market watchers. It therefore will not pose a major concern for the stock market projection. On top of that, a rate hike, while a sure negative factor, is widely expected to have a limited impact.” he added.

Such a sentiment is disputed by a different expert, You Sung-min, chief strategist at Samsung Securities.

“The Dec. 20 meeting in the U.S. will largely set the tone of the financial market view, following which the investor sentiment will be adjusted,” he said.

“While largely expected, the hike usually is more likely to trigger a drop rather than a rally.”

The ceasefire could definitely drive the market bullish, but uncertainties still linger given it is only “temporary,” he added.

“It is doubtful whether the recent ceasefire between U.S. President Donald Trump and Chinese President Xi Jinping would last. Any discord or friction could cause the 90-day ceasefire to be short-lived in which case another bout of global sell-offs could happen due to widespread investor fears.”

The KOSPI plunged 1.55 percent to close at 2,068.69, Dec. 6, dropping below the 2,100 mark since Dec. 3. The tech-heavy Kosdaq finished at 678.38, down 3.24 percent.

According to the Korea Exchange (KRX), the drop was driven by foreign sell-offs, due to fears that the U.S.-China trade conflict will escalate following the arrest of Meng Wanzhou in Canada, Dec.1.

Also known as Sabrina Meng or Cathy Meng, she is the daughter of Chinese tech giant Huawei founder Ren Zhengfei. She faces extradition to the United States.