Since the new year, the KOSPI index has been hitting new record highs day after day. Investors say it is hard to find an entry point because the index has risen too sharply in a short time, but many experts are suggesting using small pullbacks, saying, "If you wait for a big correction, you could miss the train." They judge that the time when expected returns in the stock market will be the highest in the first half of this year is the first quarter—especially Jan.–Feb., which is likely to be the "peak."
The basis for the analysis that the first quarter, especially Jan.–Feb., will be the decisive period for stock investing is the view that the driver of the current bull market is not corporate earnings but "monetary policy." Just as in Nov. last year the KOSPI plunged 9% amid strong arguments by U.S. Federal Reserve Board (Fed) members for holding rates, the early new-year rally is the result of Dec. consumer price index (CPI) data coming in below expectations and rekindling hopes for rate cuts.
Lee Eun-taek, a KB Securities researcher, said, "In a bull market, fundamentals are always good, so the only variable left is monetary policy," adding, "As long as prices remain stable, the U.S. Fed is likely to take a more dovish stance than the market expects. The stock market environment in the first quarter looks more favorable than ever."
Lee noted that the current market resembles the "three lows boom (low oil prices, a weak dollar, and low interest rates)" during the mid-1980s, the golden age of Korea's economy. At the time, stock peaks formed in Mar.–Apr., but most of the actual gains were concentrated in Jan.–Feb. Because the uptrend flattened in Mar.–Apr., leaving few practical opportunities to profit, the analysis is that this year as well the decisive profit window will be concentrated early in the year.
The researcher said, "It may be a simple coincidence, but when the macroeconomic environment is similar, investor behavior patterns tend to resemble the past," adding, "Given abundant sidelined cash and the steep earnings improvement in semiconductors, there is a high possibility that the first-half rally will cluster in Jan.–Feb. again this year."
In addition, the complexity of the macro environment expected in the second quarter is a reason why market attention is converging on the first quarter. Even during the three lows boom, as soon as signals emerged that the rate-cut cycle was ending, the index plunged 17.6%, quickly giving back its first-half gains. This year as well, once the market prices in rate-cut expectations, skepticism over whether "additional rate cuts are really possible" could grow starting in the second quarter, unleashing a wave of profit-taking.
The researcher said, "If the pattern mirrors the three lows boom, a sharp drop could appear in the second quarter on signals that rate cuts are ending," adding, "Rather than waiting for a big correction, it is advisable to buy in tranches during small pullbacks."