Last week (Jan. 13-17), the domestic stock market rebounded slightly as expectations for a U.S. interest rate cut revived. The KOSPI index started at 2515.78 on the 13th and rose 0.31% to 2523.55 by the 17th, settling above the 2500 mark. The KOSDAQ index also increased by 0.95%. As inflation concerns in the U.S. eased, investor sentiment improved somewhat.
This week, Donald Trump's second term in office officially begins. The president-elect will hold an inauguration ceremony on the 20th (local time) and start work. With several executive orders expected to have significant policy ripple effects waiting in the wings, investors will likely focus on Trump's 'words' once again.
Although the stock market has seen a slight rebound this year, the investment sentiment among foreign and institutional investors remains subdued. Individual investors made a net purchase of 764.1 billion won in the securities and KOSDAQ markets last week, while foreign and institutional investors sold a net 710.3 billion won and 224.4 billion won, respectively.
The most notable event this week is the inauguration of the president-elect. According to foreign media, including the Associated Press, Trump is expected to sign over 100 executive orders on his first day. A considerable impact on the domestic financial market is anticipated.
Kim Seong-geun, a researcher at Mirae Asset Securities, noted, "The Biden administration signed about 160 executive orders during its term, with roughly 30 processed within 100 days after taking office," adding, "Trump is also likely to focus on areas where there are significant policy differences compared to previous administrations, particularly immigration and environment/energy issues, which were key topics of his campaign."
The Trump administration may tighten immigration regulations. Strengthening immigration policy could shrink the U.S. labor market, leading to wage increases that stimulate inflation concerns. Tariffs are also factors that increase uncertainty in the stock market. Short-term market volatility may rise.
In such times, it is necessary to respond by either cooperating with Trump or avoiding sectors exposed to tariff risks. NH Investment & Securities designated shipbuilding, defense, entertainment, IT equipment, pharmaceuticals and biotechnology, and securities as sectors of interest this week.
There are opinions suggesting that the stock market has already reflected these risks. Lee Kyung-min, a researcher at Daishin Securities, explained, "Most of the executive orders expected to be issued right after Trump's inauguration involve known issues like borders, immigrant deportations, oil drilling, sexual policy, and vaccines," suggesting that "the anxieties already priced in may actually reduce uncertainty in the market after Trump takes office, leading to a sense of relief reflected in the market."
NH Investment & Securities projected that the KOSPI index would move between 2440 and 2570 this week. Despite uncertainties surrounding Trump's executive orders, they pointed out the low price attractiveness of specific sectors and the continued investments in artificial intelligence as upward factors.
Additionally, major corporations are set to announce their earnings this week. Kia and LG Display are scheduled to disclose their Q4 results on the 22nd, followed by SK hynix on the 23rd and LG Energy Solution on the 24th. Lee Kyung-min noted, "The sectors currently experiencing significant declines include semiconductors, secondary batteries, displays, and automobiles, while those undervalued relative to earnings estimates include automobiles, banks, insurance, and trading/capital goods."
The monetary policy announcements from Japan and the United States are also worth noting. The Bank of Japan's (BOJ) monetary policy meeting is scheduled for Jan. 23-24. Recently, BOJ Governor Kazuo Ueda hinted at the possibility of interest rate hikes, so the BOJ's stance announcement may lead to increased short-term stock market volatility.
Ahead of the Lunar New Year holiday stock market closure, there might also be considerations around caution. During the holiday period on the 28th-29th (local time), the U.S. Federal Reserve will hold its Federal Open Market Committee (FOMC) meeting to decide on interest rates. According to the Chicago Mercantile Exchange (CME) Group's Fedwatch, market participants estimate a 97.3% probability that rates will remain unchanged.
As the inflation rate for December released earlier was lower than market expectations, if the January FOMC decision aligns with expectations, the impact on the stock market is likely to be limited.