Chuseok is fast approaching. Like the saying, "May every day be like Chuseok, neither more nor less," it is a welcome holiday, but the domestic stock market has a "Chuseok jinx."
According to Yeom Dong-chan, a researcher at Korea Investment & Securities, the Korea Composite Stock Price Index (KOSPI) rose an average of 0.16% on the last transaction day before the Chuseok holiday from 2002 through last year, but fell an average of 0.44% on the first transaction day after the holiday. It means investors should prepare for the possibility of a market pullback after the holiday.
However, the average can be misleading in many cases. In the aftermath of Lehman Brothers' bankruptcy in 2008, the KOSPI plunged 6.1% on the first day the market opened after the Chuseok holiday. When concerns over Greece's fiscal crisis in 2011 and the U.S. federal budget in 2023 flared, the KOSPI also fell 3.5% and 2.4%, respectively, on the first day after the Chuseok holiday.
Over the past 22 years, immediately after the Chuseok holiday the KOSPI rose 12 times, was flat once, and fell nine times. In other words, there is no need to empty out one's stock account just because Chuseok is approaching.
Of course, the increase in market volatility right after the holiday should be taken into account. In particular, volatility tends to be greater after Chuseok than after the Lunar New Year holiday. Yeom said, "There are more issues around Chuseok than at the start of the year during Lunar New Year."
This year, the Chuseok holiday runs from Oct. 3 to 9, and the domestic stock market will also be closed for as many as five transaction days. Economic issues that arise during the break could be reflected in the market all at once after the holiday.
There is also a pattern of weaker flows before the Chuseok holiday. Typically, foreign investors' buying slowed in the two to three transaction days before Chuseok, and institutions' buying slowed from three to four transaction days ahead. When the holiday is long, as it is this year, the likelihood of a supply-demand vacuum increases.
This means that as the holiday nears, upward momentum could somewhat weaken, even as the KOSPI has been setting fresh all-time highs day after day on the back of foreign and institutional "buying."
Yeom projected that a sharp correction is unlikely around this year's Chuseok holiday. He advised that, rather than waiting for a pullback, a trend-following strategy may be a more appropriate response in sections where momentum (upward momentum) remains intact.
Trend-following investing had a higher win rate. Since 2011, when buying the top 10% of performers among the stocks included in the KOSPI 200 at the end of each month, returns outpaced the KOSPI's gains. In contrast, choosing a contrarian strategy of buying the bottom 10% by performance resulted in losses.
Forecasts that the bullish tone will continue through the end of the year are also coming in one after another. Sangsangin Investment & Securities and Yuanta Securities Korea raised their fourth-quarter (Oct.–Dec.) KOSPI upper-end targets to 3,700–3,750.
At this starting point, this year's Chuseok, we wish everyone a bountiful holiday without any jinx.