It was a week marked by a sigh of relief for both the New York stock market and the domestic stock market as the United States and China decided to temporarily cease their tariff war. However, due to the steep rise, the momentum was lacking. The KOSPI index started at 2593.94 last week (May 12-16). It peaked at 2646.01 during trading on the 14th before closing at 2626.87 on the 16th. The KOSDAQ index began at 724.47, rising to 739.05 on the 14th and finishing at 725.07 on the 16th.
This week (May 19-23), with no significant events anticipated, the market is expected to continue its wait-and-see approach. The KOSPI index has risen for five consecutive weeks up to last week, and whether it can set a record is the key question. There has not been a six-week consecutive rise for the KOSPI index since 2024.
Following the trade agreement between the U.S. and China, attention to economic indicators is expected to rise as corporations finalize their first-quarter (January-March) earnings reports for the year. Inflation and employment, linked to the U.S. benchmark interest rate, are the primary concerns for the market. Many investors believe that the U.S. Federal Reserve (Fed) will determine the market's direction.
Jerome Powell, the chair of the Federal Reserve, did not specify the direction of interest rates during his speech on the 15th (local time). However, he warned that "we may be entering a period of more frequent and persistent supply shocks," suggesting that long-term interest rates could remain higher than expected.
Interpretations vary. It was expected that the U.S. April Consumer Price Index (CPI) and Producer Price Index (PPI), which could have gauged the price movements following the reciprocal tariff shock of the Donald Trump administration, would show decreases compared to the previous month. However, upon closer inspection, it is difficult to feel reassured. The PPI had significantly downgraded its final figure from March, which contributed to this concern. Price increases are also beginning to be seen, starting with Walmart in the U.S.
Lee Seong-hoon, a researcher at Kiwoom Securities, noted, "Now is the time to check the tariff report card, and I judge this is a point where volatility management is required."
Conversely, there is a high possibility that the lack of a clear tariff rate may force corporations to respond with reduced employment and investment rather than price increases. Eun-taek Lee, a researcher at KB Securities, stated, "If inflation does not rise as much as feared and employment gradually weakens, ultimately, Chair Powell will mention an interest rate cut by fall."
There are also growing expectations that the Korean market could outperform. This is due to the new government's potential for expanding fiscal policy and the high likelihood that the Bank of Korea will lower the benchmark interest rate based on economic conditions. Kim Yong-gu, a researcher at Yuanta Securities Korea, expressed, "Following the new government's launch, proactive fiscal and monetary stimuli, along with market-friendly policies to escape the Korea Discount (undervaluation of Korean stocks), are expected to occur in succession."
The exchange rate of the won against the U.S. dollar dropped from the 1420 won range to 1389.6 won on the 16th, leading to the influx of foreign capital into the stock market. In the KOSPI market, foreigners have shown a buying advantage of nearly 1.6 trillion won this month. There is a growing possibility of a switch to net buying by foreigners on a monthly basis for the first time in 10 months.
Kim Byung-yeon, a researcher at NH Investment & Securities, stated, "The potential for exchange rate adjustment triggers foreign capital inflow while simultaneously creating export burdens, and therefore, there is a growing possibility to cycle from shipbuilding and defense stocks to domestic stocks or low price-to-net worth ratio (PBR) stocks (market capitalization ÷ net worth) for the first half of this year."