Volatility May Increase Ahead of Chuseok Holiday, With Pullbacks Seen as Chance to Add Exposure: Weekly Outlook

NH Investment & Securities Sees Kospi at 6,400-7,500 This Week

Risk-off sentiment may strengthen in the stock market this week from Sept. 21 to Sept. 23, raising the possibility of downward pressure ahead of the Chuseok holiday. Uncertainty over the macro outlook and the upcoming summit between the U.S. and Chinese leaders is fueling caution.

Brokerages also advise that any decline in share prices could be used as an opportunity to increase equity exposure. Earnings expectations for South Korean listed companies remain solid, while the recent market pullback has left valuations at inexpensive levels.

NH Investment & Securities on Sept. 20 projected the Kospi to trade in a range of 6,400 to 7,500 this week. On Sept. 18, the final trading day of last week, the Kospi closed at 6,894.23, up 178.82 points, or 2.66%, from the previous session, helped by foreign investors returning to the market.

Na Jeong-hwan, an analyst at NH Investment & Securities, cited easing geopolitical risks between the U.S. and Iran and lower oil prices as factors that could support the Kospi this week. On the downside, he pointed to the possibility of the U.S. easing semiconductor restrictions on China.

Particular attention is on the summit between U.S. President Donald Trump and Chinese President Xi Jinping, scheduled for Sept. 24 in Washington. If the meeting results in looser U.S. restrictions on China’s memory-chip industry, that would be viewed as a major negative for Samsung Electronics and SK Hynix.

Macro uncertainty also persists. Lee Kyung-min, an analyst at Daishin Securities, said stocks have swung between stress over a more hawkish stance after the Federal Reserve’s September Federal Open Market Committee meeting and relief from easing policy uncertainty. As the market digests the hawkish FOMC outcome, short-term volatility may increase as investors lighten positions ahead of the Chuseok holiday.

The Fed raised its benchmark interest rate by 0.25 percentage point to 3.75% to 4.0% at its September FOMC meeting, which ended on Sept. 16. Fed Chair Kevin Warsh also left the door open to further tightening at a press conference, emphasizing inflation concerns.

The Bank of Japan also raised its benchmark rate by 0.25 percentage point to 1.25% from 1.0% on Sept. 18. The move came three months after its June increase, lifting Japan’s policy rate to its highest level since 1995.

Still, Lee said any market correction this week could be used as an opportunity to increase stock exposure in anticipation of a rebound after the holiday. Trading demand usually turns conservative before a holiday, while sidelined funds tend to flow back into the market afterward, often helping stocks recover. Over the past 10 years, the Kospi’s average return was minus 0.42% in the five trading days before Chuseok and plus 0.68% in the five trading days after.

Valuations also remain inexpensive. Na said the combined consensus for net profit attributable to controlling shareholders at Kospi-listed companies stands at 806.3 trillion won ($583.1 billion) for this year and 1,047.5 trillion won ($758.0 billion) for next year. While the pace of upward revisions has slowed, the broader upward trend remains intact, he said. The Kospi’s 12-month forward price-to-earnings ratio is 5.5, the lowest level on record.

Han Gyeong-woo, Hankyung.com reporter case@hankyung.com