Will KOSPI extend technical rally?

A dealer at Hana Bank takes a look at a computer screen in focus displaying a report about the unification of two opposition presidential candidates, in a dealing room at the lender's headquarters in Seoul, Thursday. Yonhap

By Lee Min-hyung

The Korean stock market is on track for a rebound by extending what is widely considered to be a technical rally throughout this week.

Despite the slight growth of the benchmark KOSPI, market analysts remained careful about saying that local stocks have regained momentum for stable growth, due to multiple external risk factors, such as the armed conflict between Russia and Ukraine and the U.S. Federal Reserve's planned rate hikes.

Starting from Monday, the main bourse has bounced back to some extent despite such external uncertainties, but experts argued that it is too early to share an overly optimistic outlook on the market amid several unsettled factors here and abroad.

The KOSPI closed at 2,747.08, Thursday, a gain of 1.61 percent or 43.56 points from the previous trading day. The main bourse had failed to defend the 2,700-mark in late January on imminent fears of the Fed-driven monetary policy shift and escalating geopolitical uncertainties in Eastern Europe.

Data also showed that the local securities market has been attracting less capital for the past few months ahead of the looming rate hike by the Fed. According to data from the Korea Exchange, the monthly transaction volume of shares in the KOSPI and secondary KOSDAQ has been on a gradual decline since November 2021.

The figure reached a high of more than 40 trillion won back in January 2021 on ample global liquidity. But it has since had a downward momentum. This past January, the monthly stock transaction volume nearly halved on capital outflows due to widening external uncertainties.

“We need to revise down the earnings forecasts of major securities firms here in the first quarter of this year, as the stock transaction volume is declining and market volatility remains high,” eBest Investment & Securities analyst Jun Bae-seung said. “On top of that, the key rate is on the rise and the issuance of equity-linked securities is shrinking.”

The keen focus is particularly on the upcoming two-day-long U.S. Federal Reserve Open Market Committee (FOMC) meeting that will run from Mar. 15. The Fed is set to share its results on Mar. 16 and the prevalent market outlook is that the monetary authority will increase its key rate by 25 basis points for the first time since cutting it to the near-zero range in 2020 amid the outbreak of the coronavirus pandemic.

Any possible hawkish message from the meeting will come as downward pressure on the stock markets of emerging economies such as Korea's. But the upcoming announcement of the much-awaited rate hike from the Fed in itself will also come as a boon to the local stock market by clearing away monetary uncertainties.