As foreign investors returned to the domestic stock market, the KOSPI index recovered above the 2500 mark for the first time in a month since the martial law incident last year. The KOSPI index opened at 2400.87 points (p) on the first trading day of last week (Jan. 6-10) and closed at 2525.78p on the last trading day. The KOSDAQ index also recovered above 700, finishing at 717.89p.
Foreign investors have been net buyers of domestic stocks for five consecutive transactions, excluding Jan. 10. In terms of scale, this amounts to 1 trillion won just this week. The stocks that foreign investors purchased the most include SK Hynix (846.2 billion won), Samsung Electronics (254.1 billion won), and Kia (117.2 billion won).
However, it is difficult to be optimistic about the sustainability of foreign buying momentum. This is because the profit outlook for domestically listed corporations is gradually declining. The estimated operating profit for all listed companies this year was 360 trillion won last August but has recently been revised down to 316 trillion won.
Kang Min-seok, a researcher at Kyobo Securities, analyzed that "most foreign investors believe that the earnings momentum of listed companies is more important than valuation (whether the decline is excessive)." Due to the significant drop in the domestic stock market in the second half of last year, it is possible for foreign supply and demand to flow in the short term, but it is challenging to expect that the foreign buying momentum will be sustainable in the long term.
Experts are paying attention to movements in institutions instead. As institutional buying momentum flows in, investors are focusing on strategies that invest in sectors with little possibility of declining profits. These include steel, media and education, cosmetics and clothing toys, essential consumer goods, and energy. These sectors have not established high operating profit margins compared to the past 10 years, making them less likely to see significant profit declines.
It is also worth looking into the travel, retail, and food and beverage sectors. With the upcoming Seollal holiday next week, there are expectations for a recovery in profits for consumer and tourism sectors. Although domestic consumption is sluggish, there is potential for increased expectations for stocks in the travel and retail sectors that have seen significant declines.
From Jan. 28 to Feb. 4, the Chinese Spring Festival holiday will be observed. Na Jeong-hwan, a researcher at NH Investment & Securities, analyzed that "food and beverage and cosmetics, sectors related to Chinese consumption, need to be viewed from a buying perspective for the time being."
On Jan. 16, the Bank of Korea will hold its first Monetary Policy Committee meeting of the new year. The focal point will be whether the Bank of Korea will lower interest rates for the third consecutive time. The Monetary Policy Committee cut rates in October and November last year. The current base rate is 3.0%. The U.S. base rate ranges from 4.25% to 4.5%, which is 1.5 percentage points higher than Korea's upper limit.
The economic situation in Korea is severe, making it difficult for the Bank of Korea to maintain interest rates. The Bank of Korea is concerned that if trade conflicts between the U.S. and China resurface after the inauguration of President-elect Donald Trump, this year's economic growth rate could drop to around 1.7%. This estimate was made before the martial law was declared and does not account for domestic political instability. Considering political factors, it could potentially be even lower.
However, due to the burden of exchange rates, it is challenging to continue lowering interest rates. After the National Pension Service announced on Jan. 7 that it would begin strategic currency hedging (selling part of its foreign assets through forward contracts), the exchange rate paused at 1453.0 won, but this was a temporary effect. On Jan. 10, the exchange rate recorded 1466.2 won, influenced by reports that the Trump administration is considering a universal tariff (imposing a 10-20% tariff on all products imported into the U.S.).
Im Jae-kyun, a researcher at KB Securities, noted that "concerns about Korean export performance, political uncertainty, and external shocks have increased downward pressure on private consumption," adding that "there is also a need to confirm the effects of the interest rate cuts implemented in October and November last year in a situation where policy flexibility is limited."