[Weekly Outlook] KOSPI Continues Rally, Overcoming 'Tariff Concerns'

The KOSPI index is expected to continue its upward trend this week. Analysts suggest that investor sentiment could improve as tariff uncertainties and domestic political risks ease. However, rate cut expectations have diminished as U.S. inflation came in higher than expected.

According to the financial investment industry on the 16th, NH Investment & Securities suggested a KOSPI range of 2500-2640 for this week. The KOSPI has risen for four consecutive trading days. While concerns over reciprocal tariffs from U.S. President Donald Trump increased, the impact on the stock market was limited.

Trump administration's tax cut plan is expected to positively impact the stock market. NH Investment & Securities researcher Na Jung-hwan stated, "After the initial tax cut bill was announced on April 27, 2017, during Trump's first term, the stock market showed an upward trend," adding "Even if this tax cut plan isn't passed immediately, it's likely to pass eventually under Republican control of both houses. The stock market will gradually reflect this tax cut momentum favorably."

The Republican Party has announced a budget proposal including massive tax cuts, government spending cuts, and debt ceiling increases, about a month ahead of the U.S. Congress budget deadline. The tax cuts amount to up to $4.5 trillion (approximately 6,555 trillion won) over the next decade. President Trump has pledged to extend and expand tax cuts during his campaign.

While market volatility may increase due to U.S. tariff policies, experts suggest using significant price drops as buying opportunities. Lee Kyung-min, a researcher at Daishin Securities, said, "Global markets, including KOSPI, are adapting to tariff variables," adding "Market participants now recognize tariffs as a negotiation tool, limiting their impact on the market." He explained, "As long as negotiation expectations exist, financial markets can return to an upward trajectory after absorbing short-term selling pressure."

It's also positive that U.S. reciprocal tariffs won't be implemented immediately. The U.S. announced it will conduct administrative 'research' on reciprocal tariffs until April 1. Reciprocal tariffs match the tariff rates imposed by counterpart countries, differing from universal tariffs that apply uniform rates to all imports.

Regarding U.S. tariff policy, Hwang Jun-ho, a researcher at Sangsangin Securities, said, "Considering that most items maintain duty-free status under the Korea-U.S. Free Trade Agreement (FTA), momentum from delayed reciprocal tariff implementation is expected to grow," adding "It's particularly positive that automobiles are likely to be exempt from reciprocal tariffs." Automobiles and pharmaceuticals are expected to be excluded from tariffs due to U.S. consumer burden and public health considerations respectively.

Domestic political risk reduction is also expected to improve investment sentiment. As the Constitutional Court scheduled its 9th hearing for 2 PM on the 18th to hear both National Assembly and President Yoon Suk Yeol's positions, observations suggest the impeachment trial is entering its final phase.

Lee Kyung-min noted, "As the presidential impeachment trial nears its end, the won-dollar exchange rate has entered the 1450 won range," adding "Won stability could lead to improved foreign investment flows. With the pension fund supporting KOSPI's solid movement, continued foreign capital inflow could sustain KOSPI's rebound."

However, rate cut expectations have diminished as January U.S. Consumer Price Index (CPI) exceeded expectations. Markets now expect one U.S. rate cut this year. While domestic inflation isn't high, if U.S. inflation concerns slow rate cuts, a widening Korea-U.S. interest rate gap could reduce the Bank of Korea's room for rate cuts.

Na Jung-hwan stated, "Considering Fed Chair Jerome Powell's statement that 'U.S. economy is strong,' concerns about U.S. economic conditions are limited," but added "Inflation concerns remain. Reduced U.S. rate cut expectations could act as a factor for market decline."

Jin Young-ki, Hankyung.com Reporter young71@hankyung.com