As the KOSPI rose nearly 30% during April in a short-term surge, attention is turning to its direction next month. Analysts in the securities industry said the index could work off its technical burden in early to mid-May and then turn strong again from mid-month on the back of Nvidia's earnings.
Byun Jun-ho, a researcher at IBK Securities, said, "With the KOSPI surging about 30% this month in a short period, the technical burden is increasing," adding, "May will begin with this technical burden, and on top of that, market participants may even factor in the typical seasonal adage of 'sell in May,' so a turn to a strong wait-and-see stance is likely."
"Sell in May" is a Wall Street adage meaning that because markets tend to be weak from May, sell and leave, then return in November. The securities industry explains that, statistically, this is a market pattern that cannot be ignored. In particular, since 2000, the actual average May KOSPI change has been a relatively low 0.3%.
With the recent sharp rise in the KOSPI, short-term profit-taking appetite is also expected to strengthen. Byun said, "If the KOSPI rises further on favorable major economic indicators such as exports from late April to early May and approaches 7,000 points, the desire for short-term profit-taking in early May is expected to strengthen further."
However, there was advice to consider that the market jumped 30% in April. Byun said, "From experience, in years when the KOSPI jumped more than 5% in April, the KOSPI in May has never fallen," explaining, "This means that when the market showed considerable strength in April reflecting the first-quarter earnings season, the sell-in-May phenomenon did not immediately stand out."
He added, "While it is necessary to allow for the possibility of a short-term correction due to the technical burden, we do not think there is a need to worry much about the negative impact of sell in May this year," and said, "Rather, a strategy of buying the dip during a technical pullback in early to mid-May could be more effective."
Events to watch in May include the inauguration of new Federal Reserve (Fed) Chair Kevin Warsh and Nvidia's earnings release.
Warsh will take office on the 15th next month (local time). Byun said, "We judge the likelihood that the new chair, Warsh, will signal a rate cut to be very low," adding, "Looking at roughly a month before and after the time when a new Fed chair took office in the past, the stock market reflected uncertainty and showed a strong wait-and-see stance."
Nvidia is scheduled to release earnings on the 27th next month (local time). Byun analyzed, "From experience, Nvidia's results have generally been solid for several years, and because expectations tended to be priced in more before the announcement than after, semiconductor expectations driven by Nvidia could come back into focus after mid-May."