The domestic stock market is continuing a sluggish trend. Last week (Aug. 18-22), the KOSPI index started at 3202.63, fluctuated in the 3100 range, and ended at 3168.73. During the same period, the KOSDAQ index also dropped below 800 to finish at 782.51.
After controversy over the tax reform plan of Lee Jae-myung's government, the momentum for policy has weakened, causing even leading sectors to respond sensitively to minor adverse factors. The nuclear power sector experienced a sharp decline amid controversy over an agreement between Korea Electric Power Corporation and Korea Hydro & Nuclear Power with Westinghouse in the U.S., before barely bouncing back. The defense and shipbuilding sectors also showed weakness due to uncertainties regarding the possibility of a ceasefire in the Russia-Ukraine war and "MASGA" cooperation before reducing losses later in the week.
This week (25-29), there are many events likely to move the stock market. The summit between South Korean President Lee Jae-myung and U.S. President Donald Trump, which will be held at the White House in Washington, D.C. on the 25th, is crucial.
As an economic delegation visiting the U.S., a host of business leaders, including Lee Jae-yong, chairman of Samsung Electronics, Chey Tae-won, chairman of SK, Koo Kwang-mo, chairman of LG, Chung Eui-sun, chairman of Hyundai Motor, Cho Won-tae, chairman of Hanjin, Kim Dong-kwan, vice chairman of Hanwha, Park Ji-won, chairman of Doosan Enerbility, Seo Jung-jin, chairman of Celltrion, Lee Jae-hyun, chairman of CJ, Heo Tae-soo, chairman of GS, Jung Ki-sun, vice chairman of HD Hyundai, Choi Yun-bum, chairman of Korea Zinc, and Choi Soo-yeon, CEO of Naver, will participate, making it crucial to establish specific cooperation plans.
At the National Assembly, the ruling Democratic Party of Korea is expected to continue processing bills. The "yellow envelope law" (amendment to the Labor Union Act), which focuses on expanding the scope of users and limiting compensation for labor disputes, is likely to pass through the National Assembly door, and the revised Commercial Act will also be put to a vote during the plenary session on the 25th.
The current revision of the Commercial Act focuses on mandating the cumulative voting system for listed companies with assets over 2 trillion won and expanding the number of separately elected auditors. While there are concerns that this will increase the burden on corporations, there are also forecasts that it will improve governance.
It may be important for the uncertainty regarding the tax reform plan to be resolved. The current proposals include a strengthening of the transfer income tax standards for major shareholders and the highest tax rates and conditions for separate taxation of dividend income, which have faced market backlash. As it has been decided to submit these proposals to the regular National Assembly session before Sept. 3, there is a high likelihood that the Cabinet meeting this week will pass the proposals to the National Assembly.
Na Jung-hwan, a researcher at NH Investment & Securities, noted, "If policy uncertainties are resolved, we believe that we could recover policy momentum."
The Bank of Korea's Monetary Policy Committee meeting in August will also be held on the 28th. Experts in the bond market expect the base rate to remain unchanged. Although the possibility of additional interest rate cuts has been raised, Bank of Korea Governor Yi Chang-yong recently stated that he is focusing on household debt and the real estate market, leading to a significant decrease in expectations for interest rate cuts.
However, the likelihood of a U.S. rate cut is increasing. Jerome Powell, chairman of the U.S. Federal Reserve, stated at the Jackson Hole meeting on the 22nd, "Inflation is much closer to our target, and the labor market has cooled," adding, "We need to adjust our policy stance."
The market interprets this remark as a signal for the Fed to cut rates. As the Fed's focus shifts from concerns about inflation to the labor market, it has strengthened the case for interest rate cuts.
The issue is that heightened vigilance may not easily subside amid ongoing major events. Hwang Jun-ho, a researcher at Sangsangin Investment & Securities, stated, "The monetary policy path of the U.S. Federal Reserve, the trade cooperation resulting from the South Korea-Japan summit, and the South Korea-U.S. summit may influence the domestic market. However, these factors are likely to contribute more to fatigue than to expectations among investors."