On worries about liquidity tightening sparked by Kevin Warsh and debate over AI profitability, the stock market lurched sharply last week (the 2nd–6th). While the index swung wildly between 4,950 and 5,370 over the week, foreigners were net sellers of more than 11 trillion won, fueling talk that the market had peaked.
Even so, securities houses say the upward drivers remain intact. Considering improving semiconductor earnings and a friendly liquidity backdrop, a short-term correction is inevitable but the medium- to long-term uptrend remains valid, they analyze. However, with appetite for risk asset weakened, major U.S. economic indicators due this week (the 9th–13th) are expected to be the key variables steering investor sentiment.
◇The variable that will decide market direction is "liquidity"… eyes on U.S. indicators
The global financial market this week is on edge over the results of key U.S. indicators, including retail sales, employment and the consumer price index (CPI). That is because the liquidity environment could shift rapidly depending on where the data point. If data supporting expectations for rate cuts are confirmed, the preference for risk asset is likely to continue; conversely, if tightening fears reignite, investor sentiment could contract sharply.
On the 10th, U.S. December retail sales will be released. Bloomberg expects retail sales to rise 0.5% from the previous month. If consumption is stronger than expected, hopes for rate cuts could recede, but if the increase is limited, it could stoke expectations for monetary easing.
Nonfarm payrolls to be released on the 11th are forecast to increase by 71,000, with the jobless rate at 4.4%. January typically sees more temporary layoffs as holiday-season temporary jobs wind down. A slowdown in hiring reduces inflationary pressure and raises expectations for rate cuts.
The January consumer price index (CPI) to be announced on the 13th is expected to rise 2.5% from a year earlier. Given the recent drop in gasoline prices, stable prices for daily necessities, and a slowdown in corporations' price hike plans, a moderation in price increases is being discussed. If prices stabilize, hawkish worries could also ease.
A string of remarks by Federal Reserve officials is another variable. On the 10th, comments are scheduled from Board member Christopher Waller and Atlanta Federal Reserve Bank President Raphael Bostic; on the 11th, Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan; and on the 13th, the Dallas president and Fed Board member Stephen Miran.
Kim Yumi of Kiwoom Securities said, "The combination of the growth momentum from the AI investment cycle and an abundant liquidity environment has reinforced positive views on risk asset," adding, "The market's sensitivity to variables that will determine whether these conditions can persist will remain elevated for the time being."
◇KOSPI still in undervalued phase… "buy on short-term dips"
Regarding the AI bubble theory, the view that concerns are overdone is dominant. As long as competition among hyperscalers continues, large-scale computing and power facility investment (CAPEX) is inevitable, and semiconductor demand is also expected to remain solid.
Moon Nam-jung of Daishin Securities said, "Corporations' infrastructure investment is bound to continue due to model performance improvements and rising inference demand," adding, "The fact that IT is the key sector leading earnings improvement this year and next eases the controversy over revenue generation to a large extent."
Valuation appeal is also coming to the fore. Jung Hae-chang of Daishin Securities analyzed, "The 12-month forward EPS is 576.3 points (p), falling below 410p as of December 2025, and with the forward price-earnings ratio (PER) at 8.96 times, below 9 times, the KOSPI has entered an extremely undervalued zone."
However, in the short term, a digestion of supply overhang is seen as unavoidable. With wait-and-see sentiment ahead of the Lunar New Year holiday also in play, volatility could widen further.
Accordingly, experts recommend a strategy of buying in tranches on pullbacks rather than chasing. They advise focusing on leading stocks with high earnings contribution, including semiconductors, autos, shipbuilding and defense. If a volatile market persists, a rotation strategy targeting undervalued sectors such as energy, steel and media is also presented as an alternative.
◇"Uncertainty over sustainability of CAPEX… manage short-term volatility"
Some warn that the trend of CAPEX expansion underpinning the market's rise could wobble. Kim Kyung-tae of Sangsangin Investment & Securities said, "We maintain the view that AI will grow over the long term," but explained, "As the market demands AI profitability, if Big Tech facing weak earnings, shareholder pressure and a worsening macroeconomy shifts strategy toward efficiency and securing profitability rather than competing in artificial general intelligence (AGI), the CAPEX expansion trend could weaken faster than expected."
If CAPEX weakens, downward pressure could increase across semiconductors and related value chains that have risen on its back, the analysis says. Kim emphasized, "AI's long-term growth potential remains valid, but investment entails uncertainty," adding, "Risk management to prepare for short-term volatility is necessary."
There is also analysis that large-scale fundraising driven by a CAPEX surge could negatively affect the U.S. financial environment. Large bond issuance pushes up long-term interest rates and can reduce other corporations' ability to raise funds by lowering the attractiveness of their bonds. Jung Yong-taek of IBK Securities emphasized, "The risk to watch is not the cash crunch at AI companies themselves, but the possibility that, as they suck up funds like a black hole, money market tightness deepens and default risk rises for left-behind companies."
Major investment banks expect that as hyperscalers' external funding needs expand, corporate bond issuance will increase from $140 billion to as much as $300 billion, and their share of total investment-grade corporate bond issuance will also rise from 5.9% last year to as high as 16%.