"KOSPI, healthy correction… Ample liquidity around the market with policy momentum" [Weekly Outlook]

The KOSPI index surpassed the 3,100 level for the first time in 3 years and 9 months last week, then showed some corrective movement. Securities firms forecast that, as policy momentum (rising force) remains strong, the index is highly likely to recover the 3,100 mark again this week (June 30 - July 4).

On the 29th, the NH Investment & Securities Research Center suggested a projected trading range for the KOSPI this week, with a low of 2,900 and a high of 3,130.

On the 24th, the KOSPI index rose by about 3%, closing above 3,100 for the first time since September 2021. However, it finished slightly higher the following day, and then declined on the 26th and 27th, ending the week around the 3,050 mark. This correction was due to profit-taking after the index quickly entered the 3,000 area in a short period.

Still, securities analysts believe the index could rebound above 3,100 after a brief correction. The decline over the previous two days is analyzed as a healthy adjustment after a short-term surge.

In particular, optimism over new government policies is spreading, and there is ample liquidity around the stock market, supporting this forecast. Jeonghwan Na, a researcher at NH Investment & Securities, explained, "The second supplementary budget bill, worth 30.5 trillion won, is awaiting approval, so consumption coupons for stimulating domestic demand are likely to be processed as planned," adding, "The amendment to the Commercial Act is also planned to be passed by the Democratic Party of Korea by July 4, when the June extraordinary session ends."

He said, "Of course, as the opinions of economic organizations are being collected and the bill is being refined, processing is being delayed, and policies for new growth industries such as artificial intelligence (AI) data centers are also being postponed," advising, "Once these bills are passed, the scale of incoming funds should not be underestimated, so expectations for policy momentum should be maintained."

The uncertainty over a possible cut in the US base rate in July remains a variable. Therefore, market attention is focused on economic indicators.

Researcher Na said, "Comments from US Federal Reserve (Fed) members about rate cuts are split," continuing, "If next week's US ISM Manufacturing Index for June (July 1) and US Employment Report for June (July 4) show strong results, expectations for a rate cut may decrease, potentially negatively impacting stock prices. On the other hand, a slowdown in indicators may support a rate cut and reinforce expectations for a decline in discount rates." Currently, the market consensus for June's ISM Manufacturing Index is 48.5, the same as the previous month, and nonfarm payrolls are expected to be 116,000, lower than last month's 139,000.

The outlook is that stocks and sectors with policy momentum will continue to lead the market this week.

Na further noted, "Once policy implementation is confirmed, large inflows of foreign capital remain possible, and continued strength in the Korean stock market may steadily improve individual investor demand. With such side-lined funds, we should keep an eye on policy momentum," listing retail, AI, cosmetics, pharmaceuticals/biotech, holding companies, and securities as specific sectors to watch.

Minkyung Shin, Hankyung.com reporter radio@hankyung.com