Hana Securities on the 5th projected that as the domestic market's deleveraging (reduction of leveraged investing) phase enters its final stage, volatility will gradually ease. However, it noted that until foreign funds begin to flow in in earnest, an "alpha market" led by KOSDAQ and individual stocks rather than the main index is likely to continue.
Lee Kyung-su of Hana Securities said, "On Jul. it was a period when the unwinding (profit-taking) and rotation of first-half performance overlapped with semiconductor volatility caused by excessive leverage accumulation, making seasonal effects appear in an extreme way," adding, "We are now detecting a move away from that phase."
In particular, with deleveraging proceeding quickly in the Korean market, the foundation has been laid for volatility to ease going forward, according to the analysis. The combined balance of margin loans and short-selling borrowings of domestically listed companies fell from 42 trillion won in Jun. to 29 trillion won now.
Lee said, "The pace of the decline has accelerated recently, so we judge that forced selling is entering its final stage," explaining, "A substantial portion of the domestic deleveraging that amplified global market volatility has been resolved."
He also assessed that supply-demand conditions are improving. He said, "We are seeing a shift where inflows into index ETFs are growing more than into single-stock leveraged semiconductor ETFs," diagnosing it as "a sign that cohesion in supply-demand is recovering." He added, "On the KOSPI the previous day, the combination of net individual buying and an index rise was confirmed for the first time in a while."
He also cited the government's real estate tax reform as a market-friendly factor. Lee said, "This tax reform plan is strong enough to reduce the appeal of real estate as an investment asset," analyzing that "as the government intends, it will act as a factor that spurs a 'money move,' with funds structurally shifting from real estate to the stock market."
However, he projected that a trend rebound in the domestic market will be possible after a turn to net buying by foreign investors is confirmed. He said, "The current weakness in the Korean market is structurally similar to the early stage of the U.S.-China trade dispute in 2018," explaining, "Back then, the U.S. market rebounded first, while the Korean market fell further on foreign selling, and the ultimate signal of a bottom was a shift to net buying by foreigners."
Accordingly, he advised that a strategy focused on individual stocks rather than the index will be effective until foreign rebalancing funds flow in. For promising stocks in Aug., considering upward earnings revisions, excessive declines, and short interest balances, Lee suggested L&F(066970), Hanwha Ocean(042660), CJ(001040), SK hynix(000660), HD Hyundai Heavy Industries(329180), SKC(011790), Hanwha(000880), and APR(278470).
In the MSCI regular review scheduled this month, he projected a relatively high likelihood that LG Innotek(011070) will be newly added, while HLB(028300), LG Display(034220), and Yuhan(000100) could be removed. As candidates for the Nov. review, he cited Hyundai AutoEver(307950), LS(006260), 삼성E&A, Rainbow Robotics(277810), and Samsung Securities(016360).