Aftermath of Impeachment Turmoil Hits Stock Market... Securities Firms Predict Further KOSPI Decline [Weekly Outlook]

NH Investment & Securities KOSPI Weekly Forecast: 2420~2550

"Political Uncertainty to Lead to Bear Market"

Interest in China-related Stocks... Expectation of Economic Stimulus Announcement

The state of emergency has escalated into an impeachment standoff, increasing political turmoil. Securities firms predict that due to uncertainty, the domestic stock market will remain weak this week (9th-13th). As the year-end approaches, there is also expected to be a surge in sell-offs to avoid capital gains tax, further widening the decline. Uncertainty related to U.S. President-elect Donald Trump also persists.

According to the Korea Exchange on the 8th, the KOSPI closed at 2428.16 last week (2nd-6th), down 1.13% from the previous week. The previous day's vote on the impeachment motion against President Yoon was nullified due to a lack of quorum. Many members of the People Power Party were absent. Han Dong-hoon, the leader of the People Power Party, is pushing for an 'orderly resignation,' but the Democratic Party of Korea is determined to impeach the president.

Previously, the American economic media Forbes reported that "the cost of President Yoon Suk-yeol's selfish martial law situation will be paid by Korea's 51 million citizens over time," stating that President Yoon himself has demonstrated the 'Korea Discount' (undervaluation of the Korean stock market).

It also mentioned that while Deputy Prime Minister of Economy Choi Sang-mok's opinion that 'the impact of the martial law situation on the Korean economy is limited' might be correct, Korea, facing difficult situations such as China's economic slowdown and the U.S. regime change, is increasingly likely to be unable to respond appropriately to the political paralysis caused by the martial law situation.

Since political issues like presidential impeachment cannot be resolved in the short term, the aftermath of the martial law situation is expected to engulf the stock market this week as well. Hwang Joon-ho, a researcher at Sangsangin Securities, said, "Foreign investors are withdrawing after the state of emergency, increasing downward pressure on the domestic stock market," and "If the impeachment turmoil begins in a situation where the overall fundamentals of the Korean economy are weakened, a decline is expected, focusing on finance, entertainment, defense, and nuclear power themes, which are greatly affected by political issues."

He added, "The expectation for a rise in semiconductor sectors related to artificial intelligence (AI) remains valid. Also, some sectors are expected to see inflows of bargain hunting," but "due to increased uncertainty from political events, the domestic stock market is expected to show a downward trend this week."

The year-end approach is also expected to negatively impact the stock market due to sell-offs to avoid major shareholder capital gains tax. Currently, the capital gains tax on listed stocks is imposed on those holding a certain percentage of shares per item (1% for KOSPI, 2% for KOSDAQ, 4% for KONEX) or 5 billion won per item. High-value investors tend to sell off at the end of the year to avoid being designated as major shareholders and buy back at the beginning of the year. This is because the tax target is determined based on the stock holdings on the last trading day of each year.

Some believe that if the impeachment motion is passed, the index will recover slightly. This is because it can be interpreted as a reduction in political uncertainty. NH Investment & Securities predicted the KOSPI's expected range this week to be 2420~2550. Considering that the KOSPI was 2441.85 before the expected range announcement, the upper range has been opened further.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "If the impeachment motion is rejected, political turmoil may continue, leading to a volatile market," but "if the impeachment motion is passed, the stock market is expected to be more influenced by fundamentals and external conditions rather than reacting sensitively to impeachment-related events."

However, the rebound is expected to be limited. This is because the 'Trump risk' remains. Researcher Kim stated, "Considering the policy risks of the Trump administration, the stock market is likely to continue a sideways trend after a limited rebound." President-elect Trump is trying to build a U.S.-centric economic ecosystem by strengthening protectionist measures and easing regulations.

Securities firms advised looking for investment opportunities in China-related stocks. This is because the Central Economic Work Conference in China is scheduled for the 11th-12th, where economic stimulus measures are expected to be announced. The Central Economic Work Conference decides the direction of economic policies, including next year's economic growth rate. The economic policies decided here are approved at the National People's Congress held in March next year. Sangsangin Securities expects interest rate cuts, easing of real estate regulations, and consumption-boosting policies to be announced.

Major domestic and international events scheduled for this week (local time) include the announcement of China's November Consumer Price Index (CPI) and Producer Price Index (PPI) on the 9th, the U.S. November CPI announcement and the Central Economic Work Conference in China on the 11th, the European Central Bank (ECB) interest rate decision and the U.S. November PPI announcement on the 12th, and the regular changes to KOSPI 200, KOSDAQ 150, and KRX 300 on the 13th.

Jin Young-gi, Hankyung.com reporter young71@hankyung.com