Hana Securities said the KOSPI is likely to attempt a "√-shaped (root) rebound" after Aug., rather than a V-shaped snapback that immediately recoups the recent plunge. Share prices have fallen to crisis levels while earnings outlooks for corporations have instead improved, and the pressure from rising U.S. interest rates has eased. Still, because foreign inflows and investor sentiment have not fully returned, the firm expected a pattern of a mild climb after an initial bounce.
On the 11th, researcher Kim Doo-eon at Hana Securities said, "The anxiety has not ended, but the rebound has begun," and added, "Prices are weak, but earnings are not."
The KOSPI fell 33.3% from its June peak, but the 12-month forward earnings per share (EPS) forecast has risen about 184% since the start of the year and has been revised up for 12 straight months. Exports last month also rose 62.8% on-year to $98.89 billion, and semiconductor exports increased 178.8%.
What sets this apart from past crises lies here. During the foreign exchange crisis, the global financial crisis, and COVID-19, earnings outlooks for corporations deteriorated alongside falling stock prices. Now, however, the explanation is that even as prices drop, earnings forecasts are rising. As of the 9th, the KOSPI's 12-month forward price-earnings ratio (PER) was 5.12 times, lower than the 6.27 times seen during the 2008 financial crisis.
Kim said, "Prices reflect a crisis, but earnings are not yet in crisis."
However, the firm said it is difficult for the rebound to immediately turn into a steep rally. Above all, foreign investors have not yet returned. Last month, foreign selling was concentrated in large-cap semiconductor stocks such as Samsung Electronics and SK hynix, and in the first week of Aug., foreigners posted a net selloff of about 7.4 trillion won on the KOSPI.
A "√-shaped rebound" means a pattern in which prices first jump quickly on oversold relief and rate stability, then the ascent slows as the market waits for foreign investors to return and gains confidence in corporations' earnings.
Easing U.S. rate pressure was cited as the driver of the initial bounce. With U.S. jobs data coming in weaker than expected, the odds of additional rate hikes have fallen, and the U.S. 10-year Government Bonds yield has come down to the 4.6% range. When rates stabilize and the dollar weakens, it is favorable for the won. Still, Kim said, "Exchange-rate stability is a necessary condition, and restoring trust in semiconductor earnings is a sufficient condition," adding that it will take time for foreign inflows to recover.
There is also analysis that the flow distortions from single-stock leveraged exchange-traded funds (ETFs), which had amplified recent market volatility, are past their peak. Single-stock leveraged ETFs' share of KOSPI transaction fell sharply from 32.5% on the 30th of last month to 3.4% on the 7th of this month. With measures such as raising base margin requirements and halting new listings taking effect, the explanation is that mechanical volatility could diminish.
Kim additionally proposed imposing a transaction tax of about 0.2% on sales limited to single-stock leveraged and inverse ETFs. This is a researcher's proposal for market stability, not a finalized government policy. The idea is to have those products bear the volatility expense that ultra-short-term trading and rebalancing impose on the cash market.
Kim said, "We should not regulate ordinary ETFs," adding, "Limit the scope of application to single-stock leveraged and inverse products that have a large volatility-amplifying effect, and adopt a sunset system that reassesses the impact after a set period."
Kim added, "The first bounce is made by prices and rates, and the next rise is made by earnings and foreign investors," and said, "The fear is not over yet. But the rebound has already begun."