KOSPI’s 'record plunge'… Will it open higher as Wall Street and oil markets calm? [Market Preview]

Korea Economic Daily

Summary

The KOSPI and Kosdaq plunged 12.06% and 14.00%, respectively, posting record daily declines and triggering circuit breakers and sidecars.
With overnight gains in the U.S. market—Dow Jones, S&P 500, and Nasdaq—and easing conditions in the oil market, expectations are growing for a rebound and a higher open in the domestic market.
Han Ji-young of Kiwoom Securities said bargain hunting is flowing into oversold market leaders, and as semiconductor-led KOSPI earnings momentum remains intact, the odds of a rebound are high.

Forecast Trend Report by Period

On the 5th, South Korea’s stock market is expected to stage a rebound as tailwinds from Wall Street and signs of calming in the oil market emerge.

The previous day, the KOSPI closed at 5,093.54, plunging 12.06% as geopolitical tensions escalated following the outbreak of war between the U.S. and Iran. The day’s decline exceeded the prior record of 12.02% set on Sept. 12, 2001, the day after the 9/11 attacks. The Kosdaq also ended at 978.44, tumbling 14.00% to post its steepest-ever daily fall.

In the main board market, a program-trading sell-side “sidecar” (temporary halt) was triggered for a second consecutive session following March 3, while a sell-side sidecar for the Kosdaq was triggered for the first time in four months. With both the KOSPI and Kosdaq plunging more than 8%, a “circuit breaker” that halts trading in both markets for 20 minutes was also briefly activated.

Expectations are rising that the KOSPI will open higher, as U.S. equities rebounded overnight and bargain-hunting flows followed the prior session’s selloff. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.49% from the previous close. The Standard & Poor’s (S&P) 500 and the Nasdaq Composite gained 0.78% and 1.29%, respectively.

Analysts said risk appetite returned to equities as the oil market showed signs of stabilizing on U.S. government measures to rein in prices. On ICE Futures Europe, Brent crude for May delivery settled at $81.40 a barrel, flat from the prior session, while on the New York Mercantile Exchange, West Texas Intermediate (WTI) for April delivery ended at $74.66 a barrel, up 0.1%.

Reports of backchannel contacts between the U.S. and Iran also fueled expectations that the war could end sooner than anticipated. The New York Times (NYT) reported that the day after U.S. and Israeli airstrikes, Iran’s intelligence authorities offered, via a third country, talks to the U.S. Central Intelligence Agency (CIA) to end the conflict.

Han Ji-young, a researcher at Kiwoom Securities, said, “The domestic market is likely to move to recoup yesterday’s plunge, led by oversold market leaders,” adding, “Given the extent of the KOSPI’s outsized one-day drop and that the KOSPI’s earnings momentum—centered on semiconductors—has not been impaired, the likelihood of a rebound is high.”

Reporter Ryu Eun-hyuk ehryu@hankyung.com