KOSPI Falters Amid Dual Headwinds of Tariff Negotiations and Tax Reform… "Could Fall Below 3,000" [Weekly Outlook]

NH "KOSPI Weekly Range: 3,000–3,300"

On the first trading day of August, the KOSPI index experienced its steepest decline since the inauguration of Lee Jae-myung's administration. This is attributed to disappointment over the government's tax reform proposal. With the KOSPI now even facing threats to the 3,100 mark, securities firms forecast that the index could drop to as low as 3,000 this week (August 4–8).

On the 3rd, NH Investment & Securities' Research Center estimated the KOSPI’s expected fluctuation range this week to be a low of 3,000 and a high of 3,300.

After the Korea–U.S. trade agreement was reached on the 31st, the index closed down 0.28% at 3,245.44. The next day, Friday (August 1), it fell another 3.88% to 3,119.41. This is the largest dip since April 7 (-5.57%) when the Trump tariff shock struck.

On the 31st, the government announced its ‘2025 tax reform proposal’ which includes lowering the definition of 'major shareholder' subject to capital gains tax on stocks from ₩5 billion to ₩1 billion. As the domestic stock market plunged, Kim Byung-ki, the floor leader of the Democratic Party of Korea, stated the day before that the government’s announcement could be reconsidered. However, Jin Sung-joon, the party's chief policy secretary, publicly expressed his opposition, exposing stark differences within the ruling party.

Securities firms assessed that while the resolution of tariff uncertainties and abundant market liquidity are positives, the decreased expectations for the tax law revision are burdensome. Concerns also remain around U.S. product tariffs and diminished market expectations for a Federal Reserve rate cut.

Na Jung-hwan, a researcher at NH Investment & Securities, said, “The conclusion of U.S. tariff negotiations is somewhat reassuring as a risk factor has been removed going forward. In absolute terms, it is negative that a 15% tariff will be imposed on exports to the U.S., but resolving tariff uncertainty has alleviated some of the risk.” He added, “This is because the conclusion of negotiations eliminates the potential for further downward revisions to corporate earnings forecasts in the second half.”

He further explained, “Among the details of the agreement, the fact that $150 billion will be invested in shipbuilding—a Korea–U.S. cooperative industry—continues to bolster expectations for the shipbuilding sector.”

Given the abundance of surrounding funds in the stock market, a rotation among leading stocks is expected to continue. “It is advisable to maintain an overweight allocation to existing leading sectors such as shipbuilding, defense, and nuclear power, which are relatively less affected by tariffs,” he said.

He went on, “Attention should be given to domestic consumption stocks that are minimally impacted by tariffs.” He added, “In particular, due to government policies aimed at boosting consumer spending, watch for increased spending by domestic consumers (food and beverage), as well as special consumption related to tourism as the number of foreign tourists rises with Korea’s growing soft power (duty-free, cosmetics, casinos).”

There is also an expectation that the government will implement a visa waiver policy for Chinese group tourists in the third quarter, thus the view is that interest in domestic consumption and tourism-related sectors should be maintained. Na noted, “Monthly visitors from regions other than China and Japan, such as the Americas and Europe, are at record highs,” emphasizing these points.

For individual stocks, recommendations included food and beverage (Lotte Chilsung Beverage), shipbuilding (HD Hyundai Mipo Dockyard), cosmetics (Amorepacific), domestic consumption and duty-free (Shinsegae), entertainment (YG Entertainment), and casino (Paradise Co., Ltd.).

Reporter Shin Min-kyung, Hankyung.com radio@hankyung.com