The KOSPI index is again attempting to break into 8,000 points. This week (the 26th-29th), a meeting of the Bank of Korea's monetary policy committee to decide the base rate is scheduled, and a revised economic outlook will also be released. Investor attention is expected to converge on second-quarter earnings consensus for listed companies.
Externally, there are many factors that could increase volatility in the stock market. Hopes are rising for a cease-fire agreement between the United States and Iran, but issues remain to be resolved, including Iran's uranium enrichment and control over the Strait of Hormuz. Although the scale has shrunk, continued foreign selling is also a burden.
Last week, the domestic stock market rebounded as it resolved risks one by one. With just over an hour left before a general strike by the Samsung Electronics union, labor and management dramatically reached a wage agreement, lifting the domestic market. The surging U.S. Government Bonds yields also eased somewhat after U.S. President Donald Trump said the talks were in the "final stage."
The KOSPI index, which had been shaken sharply by overlapping internal and external uncertainties, fell to the 7,200 level at one point last week but rebounded to around 7,850 points by recovering losses in the latter half of the week.
With just about 150 points left to reach "8,000 points," foreign fund flows are expected to be the key variable for the index's direction. Foreign investors have led the index lower with 12 consecutive sessions of net selling recently. On the 21st, the net selling shrank to the 200 billion won range, somewhat easing the selling intensity, but on the 22nd they again posted net selling in the trillion-won range.
Extreme volatility continues. Since the KOSPI index surged 8.42% in a single day on the 21st, any wave of profit-taking could widen the decline. In addition, the launch on the 27th of single-stock leverage and inverse exchange-traded funds (ETFs) is another factor that could increase volatility.
Cho Byung-hyun, a researcher at Daol Investment & Securities, said, "While instability in advanced economy Government Bonds yields was the direct trigger, volatility is particularly high in the domestic market, so the burden from the accumulated short-term surge was reflected all at once," adding, "With oil price pressures, inflation concerns, and the variable of a new Fed chair with a different stance from the former chair still in play, swings in the index could frequently widen through early in the third quarter."
Attention is also on the release of the revised economic outlook and the meeting of the Bank of Korea's monetary policy committee (Monetary Policy Board) on the 28th next week. The market expects the base rate to be kept unchanged at 2.50%. As it is the first meeting chaired by Governor Shin Hyun-song of the Bank of Korea, there is a high possibility the focus will be on assessing internal and external economic conditions rather than adjusting rates.
In the revised economic outlook to be released right after the Monetary Policy Board meeting, there is talk that forecasts for economic growth and consumer price inflation could both be revised upward. This could rekindle the possibility of future base rate hikes.
Kim Yu-mi, an economist at Kiwoom Securities, said, "Domestic market interest rates are already rising as they partially reflect the possibility of additional rate hikes," adding, "Depending on what message Governor Shin's press conference delivers to the market, volatility in market interest rates could expand in the short term."
Experts emphasize that even amid a volatile market, attention should ultimately be paid to earnings and valuation (price level relative to earnings). While short-term volatility factors continue, the market's focus is likely to soon shift to the second-quarter earnings season. NH Investment & Securities presented the KOSPI's expected weekly range for this week as 7,200-8,500 points.
Na Jeong-hwan, a researcher at NH Investment & Securities, said, "As the second-quarter earnings season approaches, the market's focus is likely to shift from macroeconomic uncertainty to corporate fundamentals," forecasting, "As earnings momentum and valuation appeal align, stock prices could regain upward traction."