The heated Korean stock market continues to catch its breath. Last week (Aug. 11-14), the KOSPI index started at 3220.72, fluctuating slightly up and down before closing at 3225.66. During the same period, the KOSDAQ index also began at 810.51 and ended slightly higher at 815.26.
Compared to the record highs set by the U.S. Standard & Poor's (S&P) 500 index, NASDAQ index, and Japan's Nikkei Average (Nikkei 225), it was relatively disappointing for the past week, bolstered by expectations for interest rate cuts.
With the Korean stock market taking a breather for Liberation Day, the U.S.-Russia summit did not yield meaningful outcomes. However, Russian President Vladimir Putin proposed follow-up talks in Moscow, while U.S. President Donald Trump assessed the results as significant.
This week (Aug. 18-22) may also see a 'wait-and-see' market. This is because the Jackson Hole meeting will take place from the 21st to the 23rd. The Jackson Hole meeting is an annual economic policy symposium held in Jackson Hole, Wyoming, where central bank governors, finance ministers, and economists discuss global economic issues and the direction of monetary policy.
Since the COVID-19 pandemic, the global stock markets have repeatedly fluctuated around the Jackson Hole meeting. This year, the market is paying close attention to Federal Reserve Chair Jerome Powell.
Chair Powell mentioned during the 2021 Jackson Hole meeting that inflation was temporary, and as a result, the KOSPI index surged from the 3100s to the 3200s. Chair Powell's assessment was incorrect, and at the 2022 Jackson Hole meeting, he made a strong statement that rate hikes would continue to combat inflation. The KOSPI index subsequently slid from the 2400s to the 2100s within a month.
In 2023, Chair Powell maintained a cautious stance regarding additional interest rate hikes and indicated that the time for resuming rate cuts was approaching. The market reacted with overall relief.
The market's volatility is expected to increase depending on the stance Chair Powell takes at this Jackson Hole meeting. Based on employment indicators and the U.S. Consumer Price Index (CPI) released so far, the market has practically priced in a reduction in the benchmark interest rate at the Federal Open Market Committee (FOMC) meeting in September.
If Chair Powell indicates that he must be cautious in deciding on rate cuts due to the lagging effects of tariffs, it could significantly shake the global stock markets. Since this is his last Jackson Hole meeting during his chairmanship, he may emphasize his beliefs in 'hard data' as usual.
Lee Kyung-min, a researcher at DAISHIN SECURITIES, noted, "The current market reflects expectations that Chair Powell will announce a resumption of rate cuts as he did last year," adding that even if Powell takes a neutral stance, the situation may fall short of expectations, leading to greater caution or reluctance among investors than additional optimism.
U.S. retail companies, including Home Depot (HD), Walmart (WMT), and Target (TGT), also have earnings announcements scheduled. Kang Jin-hyeok, a researcher at Shinhan Investment Corp., stated, "If there are mentions of price increases or profit erosion due to tariff impacts in the earnings or guidance of U.S. retail corporations, it could serve as a source of anxiety for the market."
Recent tax reform proposals from the Lee Jae-myung government, which shook the domestic market, are set to transition to the National Assembly after completing the legislative notice process, followed by a vice ministerial meeting on the 21st and a Cabinet meeting on the 26th. While the presidential office has maintained that there has been no change in position regarding the Ministry of Economy and Finance proposal, whether changes occur during the discussion process will be crucial.
On the 21st, the ruling Democratic Party of Korea plans to present the company law amendment and the Yellow Envelope law proposal for processing in the National Assembly's plenary session. This second company law amendment includes mandates for concentrated voting and the expansion of separate elections for audit committee members. The opposition and the business community express concerns that if both laws pass, it could exacerbate threats to management rights and complicate normal business activities due to demands for collective bargaining from numerous subcontracting companies.
With the second-quarter (April-June) earnings announcements of domestic listed corporations now complete, there are opinions suggesting that it is necessary to consider the possibility of weakened earnings growth for corporations in the second half of the year. Currently, the third-quarter operating profit forecast is about 18% higher than the same period last year, but its achievability remains uncertain.
Yoo Myung-gan, a researcher at Mirae Asset Securities, remarked, "The period from August to October tends to see minimal changes in earnings forecasts, making macroeconomic indicators all the more significant," adding that it may be worth paying attention to turnaround sectors like IT hardware and secondary batteries, as well as healthcare, which are expected to benefit from anticipated interest rate cuts.