‘Sell in May’ Angst Grows as Kospi Charges Toward 6,700

Early-May Breather May Give Way

to Renewed Gains

South Korean stock investors are watching whether the old “Sell in May” adage will hold this year after the Kospi climbed above 6,700 intraday and set another record. May has often been a weak month for equities. Still, strategists say the benchmark, after surging more than 30% in April, may take a breather in early May before rebounding.

As of 3 p.m. on April 29, the Kospi was up 0.84% at 6,696.71. After closing at 6,641.02 a day earlier, the index remained in positive territory and moved back toward the 6,700 level. It touched 6,702.38 in afternoon trading, topping 6,700 for a second straight session after reaching 6,712.73 intraday on April 28.

In both Korean and overseas equity markets, momentum has often cooled from May through autumn. Liquidity-driven gains at the start of the year tend to fade, while earnings expectations typically weaken as the second half approaches. IBK Investment & Securities said the Kospi has posted an average gain of just 0.3% in May since 2000, and average returns from May through October have trailed those in winter. That has fueled expectations of profit-taking in early May.

Even so, the brokerage said this year may be different given the Kospi’s roughly 30% surge in April. Byun Jun-ho, an analyst at IBK Investment & Securities, said the Kospi has never fallen in May in years when it had already jumped more than 5% in April, a period that reflects first-quarter earnings season. While a short-term pullback remains possible, he added that investors need not be overly concerned about any negative “Sell in May” effect this year.

The head of one asset management firm said the price-to-earnings ratios of Samsung Electronics and SK Hynix, two of the Kospi’s bellwether stocks, remain relatively low at about five to six times. Gains led by those shares should keep the Kospi’s advance intact, the executive said.

A similar view is emerging on Wall Street. Since 1945, the S&P 500 has risen an average of just 2% from May through October, compared with a 7% gain in the following six months. Even so, Paul Ciana, Bank of America’s chief technical strategist, said his analysis of the market’s average performance over one-, three- and six-month periods suggests the “Sell in May” rule will break down this year. Instead, he recommended buying in May, selling in July or August, and preparing for a weaker market from August through October.

Strategists highlighted two events for investors to watch in May: Kevin Warsh’s inauguration as the new Federal Reserve chair and Nvidia’s earnings report. Warsh will take office on May 15. Byun said the chances that the new Fed chair will signal rate cuts are very low, adding that stocks have historically shown uncertainty in the month before and after a new Fed chair takes office. Nvidia, which is due to report earnings on May 27, is also set to have a major impact on semiconductor shares in South Korea and abroad.

Bae Seong-su / Kang Jin-gyu, Hankyung.com reporters baebae@hankyung.com