Will KOSPI Gain Momentum from the South Korea–United States Summit and Indications of U.S. Interest Rate Cuts? [Weekly Outlook]

NH Investment & Securities: "KOSPI Expected to Fluctuate Between 3000 and 3280 This Week"

Brokerages forecast that the KOSPI index could experience heightened volatility this week (25th–29th). Although positive momentum such as the South Korea–United States summit and signs of a U.S. interest rate cut exist, uncertainties remain, such as the government's decision regarding the major shareholder capital gains tax.

On the 24th, NH Investment & Securities projected the KOSPI index to range between 3000 and 3280 points this week, commenting, "Events like the South Korea–United States summit could serve as upward catalysts, but domestic policy uncertainties act as downward factors." Last week, the KOSPI closed at 3168.73 points, down 1.76% from the previous week.

On the 22nd (local time), Jerome Powell, Chair of the U.S. Federal Reserve (Fed), mentioned during his speech at the Jackson Hole meeting that, "With mounting downward pressure in the labor market, we may consider a shift in policy stance," which has been interpreted as increasing the likelihood of a U.S. benchmark rate cut in September—a factor supporting the KOSPI's downside.

The market originally expected that, since the U.S. August employment report and consumer price index set to be announced next month had not yet been published, Powell would maintain a cautious stance on rate cuts. Contrary to expectations, however, he delivered dovish (preference for monetary easing) remarks.

Powell said, "Based on the stability of the unemployment rate and other labor market indicators, we can carefully consider changes to policy stance," adding, "Policy is currently in a restrictive area, and if the baseline outlook or risk balance shifts, we may need to adjust our policy approach."

This was interpreted as a signal that the Fed—which had primarily focused on curbing inflation—may shift its policy stance to place more weight on risks of a labor market slowdown going forward. The market took this as virtually opening up the possibility of a September rate cut.

He evaluated, "Overall, the labor market seems balanced, but this is a peculiar equilibrium caused by both labor demand and supply slowing sharply. This unusual situation suggests growing downside risks to the job market." He went on, "If these risks materialize, it could lead to a surge in layoffs and rising unemployment."

As Powell sent signals of a rate cut with unexpectedly dovish remarks, market expectations for monetary easing rose, and the financial markets responded enthusiastically. The previous day, the three major U.S. indexes on the New York Stock Exchange rebounded sharply by more than 1%, and the U.S. Treasury yield plummeted about 10bp (1bp=0.01%). The Federal Funds futures market also reflected a 91.1% probability of the Fed lowering the benchmark rate by 0.25% in September, up from 75% before Powell’s speech.

The upcoming South Korea–United States summit, scheduled for this week, is also regarded as a potential investment momentum for the stock market. President Lee Jae-myung will hold a summit with U.S. President Donald Trump on the 25th (local time). Follow-up discussions are anticipated on the MASGA (Make American Shipbuilding Great Again) project, nuclear power industry, and LNG project after previous tariff negotiation talks.

Jeong-Hwan Na, a researcher at NH Investment & Securities, stated, "South Korea and the United States have agreed on a $35 billion investment fund for the U.S., but President Trump is likely to demand concrete follow-up plans. In particular, as discussions have emerged regarding the $15 billion Shipbuilding Cooperation Fund urgently needed by the U.S. and the MASGA project, expectations for Korea’s shipbuilding sector’s maintenance, repair, and overhaul (MRO) business and naval ship business may be heightened."

However, the 'major shareholder capital gains tax criteria' remains a flashpoint in the stock market. Yoon-Cheol Koo, Deputy Prime Minister and Minister of Economy and Finance, commented on the 19th regarding the issue of taxable stock holdings per issue for major shareholders, stating, "We are carefully considering the various opinions received."

The Ministry of Economy and Finance announced a tax reform plan last month, which proposed strengthening the criteria for major shareholders subject to capital gains tax from 'holdings of 5 billion KRW or more per issue' to 'holdings of 1 billion KRW or more per issue.' However, the lowering of the threshold was criticized, mainly by individual investors, as going against the new administration’s policy intent to boost the stock market.

Sang-Ho Woo, Senior Secretary to the President for Political Affairs, said at a press briefing on the 21st, "The Democratic Party of Korea and the Office of the President have already communicated to take some time before reaching a decision on this matter," maintaining a 'take it slowly' policy.

Researcher Na noted, "A vote on the second amendment to commercial law is scheduled at the National Assembly’s plenary session on the 25th, and the government’s announcement on the major shareholder capital gains tax is also expected soon. Once these policy uncertainties are resolved, policy momentum could be restored."

In addition, NVIDIA's earnings announcement on the 28th (local time) is expected to provide a mid-term check for future forecasts and momentum in the artificial intelligence (AI) industry. Lately, the so-called 'AI bubble' debate has resurfaced in U.S. industry circles, unsettling investment sentiment toward U.S. tech stocks and SK Hynix, among others.

The Bank of Korea’s Monetary Policy Committee meeting is also scheduled for the 28th. However, recent remarks by Governor Chang-Yong Lee, emphasizing household debt and real estate, have led to dominant projections of a 'rate hold.'

Jeong-Dong No, Hankyung.com reporter dong2@hankyung.com