KOSPI plunges after touching 7,000: Why?

The KOSPI index started smoothly, easily surpassing the 7,000 mark in the morning. However, it abruptly reversed course around 2 PM, giving back its gains and falling below 7,000. The host expressed concern about the day's market situation, stating, "What caused the sudden collapse at the end of the trading day, right at the 7,000-point threshold? Our market started well today, easily surpassing 7,000. But as 2 PM approached, it suddenly began to slide."

The biggest reason for the market's decline today was the news that oil facilities in Saudi Arabia, in the Middle East, had been attacked. This led to a surge in Brent crude prices, which immediately caused a breakdown in market supply and demand. Park Yong-jin, PB, explained, "The biggest reason was definitely the news that oil facilities in Saudi Arabia in the Middle East were attacked; that seems to have acted as the biggest trigger. It's important that the market started falling the moment Brent crude rose. If oil prices jump, interest rates jump, and if interest rates jump, stocks fall." He emphasized the macro environment where rising oil prices lead to rising interest rates and falling stock prices.

To assess future market risk reflection, the difference in trends between Brent crude and WTI futures prices must be closely monitored. Park Yong-jin, PB, advised, "What we need to see tomorrow morning is how much the stock market is reflecting these risks. We need to look at the difference in trends between Brent crude and WTI futures prices." A smaller price difference between these two crude oil types indicates that the market perceives the risk as low.

If the KOSPI index reaches the 7,000 to 7,500 range, approximately 38 trillion won of individual investor funds are tied up, making profit-taking inevitable. Hwang Dae-geun, PB, analyzed, "About 38 trillion won of individual funds are tied up in the KOSPI 7,000 to 7,500 range, so profit-taking is unavoidable. The market in the second half of this year will likely be a general range-bound market, but with gradually rising lows." This suggests that a range-bound trend with progressively higher lows, rather than a V-shaped rebound, will be the main characteristic of the market in the second half of this year.

Oil prices surged dramatically from 1 PM today, coinciding with the KOSPI index's decline. Notably, unlike last Thursday, the USD/JPY exchange rate also rose. Hwang Dae-geun, PB, analyzed, "Oil prices rose sharply from 1 PM. The KOSPI index fell in conjunction with the rise in stock prices, and unlike last Thursday, the USD/JPY exchange rate went up. Looking at this, macro issues, particularly Middle East issues, had a greater impact on the market than intervention in the yen." He emphasized that Middle Eastern geopolitical risks had a dominant influence on the market rather than yen intervention.

Goldman Sachs raised its KOSPI target to 12,000, fueling positive expectations for the long-term outlook of the stock market. Hwang Dae-geun, PB, commented, "Goldman Sachs raised its KOSPI target to 12,000. Their logic is based on 12-month PBR being half of the 7-year average. In any case, I personally believe there's a high probability the stock market will gradually rise." He presented an undervaluation argument, stating that based on the 12-month PBR, the current stock market is only at half of its 7-year average.

Market fluctuations are expected to repeat throughout September. Hwang Dae-geun, PB, said, "Throughout September, as you mentioned, we'll likely see ups and downs. There are inflation figures this week and the FOMC in about two weeks, and foreign and institutional supply and demand need to stabilize as these are absorbed." The inflation data release this week and the FOMC (Federal Open Market Committee) meeting results scheduled for the week after next are expected to significantly impact the market, with stabilization of foreign and institutional supply and demand being a crucial variable.

September's upward momentum is expected to be challenging, with a high likelihood of a difficult range-bound market. Park Yong-jin, PB, stated, "I have a similar opinion. Assuming there are standby funds, it's highly likely that these funds will flow in after the CPI and FOMC announcements." He expressed anticipation for the inflow of waiting funds after the release of major economic indicators. The possibility of index recovery by year-end still exists, but short-term volatility is expected to be high.

An analysis suggests that concerns about the unwinding of the yen carry trade are already well-known in the market, making it unlikely to lead to an unexpected major shock. Park Yong-jin, PB, explained, "The very act of using the term 'shock' implies an unexpected issue arising. However, the market is already aware of this issue, so I believe the probability of a major shock is not that high." Nevertheless, continuous monitoring is necessary regarding the impact of yen appreciation on liquidity absorption and yen carry funds using leverage in the domestic market.

Japan's interest rate hike is now considered a fait accompli, and analysis suggests there will be no sudden market shock like two years ago. Hwang Dae-geun, PB, stated, "I believe Japan's interest rate hike has become a fait accompli. Two years ago, the probability of a rate freeze was about 70%, meaning most people expected a freeze. The market was caught off guard and plunged because of the sudden hike, with no time to prepare." Unlike two years ago, when a rate freeze was the dominant expectation but a sudden hike shocked the market, current economic indicators are improving. Japan's Q2 real GDP surpassed expectations, and real wages in July rose 2.4% year-on-year, marking the highest increase in three years, indicating that the market is preparing for an interest rate hike.

The upcoming inflation figures are still unlikely to be fully reflected in the market, and there's a forecast that a discrepancy between actual results and estimates could shock the market. Hwang Dae-geun, PB, pointed out, "It's difficult to say that inflation figures have already been priced in. While figures are estimated, the actual results haven't been released yet, so if they deviate, I believe there could be a market shock." Specifically, core consumer price index (CPI) excluding oil prices is expected to be a key variable.

Foreign and institutional investors have shown net buying for four consecutive trading days, with a combined net buying of approximately 1.3 trillion won today, despite the index's decline. Foreign investors bought 630 billion won, and institutions bought 640 billion won, supporting the market's downside. The fact that major investment entities maintained active buying even amidst a general market decline is noteworthy and can be interpreted as a positive signal for the market in the long term. Nevertheless, short-term volatility still exists, requiring investors to approach with caution.