Expectations for the end of U.S. austerity… Rally likely by year-end
“Even if there are fluctuations, KOSPI will head toward the 2600 mark within the year.”
Expectations are growing for a ‘Santa Rally’ in which stock prices rise strongly around Christmas. Among stock market experts, expectations for the end of austerity measures have increased, and weight is being placed on the outlook that the upward trend of the KOSPI and global stock markets will continue based on downward stabilization of bond yields and the dollar until the end of the year.
According to securities firms on the 20th, with our stock market recently regaining stability, there is speculation that the Santa Rally will appear more quickly ahead of December. The Santa Rally refers to a phenomenon in which the stock market rises around Christmas at the end of the year. In general, stock prices tend to rise due to expectations of year-end dividends, etc.
In particular, this year, the possibility of a premature Santa rally is increasing as the global investment environment is positively created, such as the U.S.-China summit, falling U.S. bond yields, and plummeting oil prices, along with the effect of the inflow of short covering due to the complete ban on short selling.
Lee Hyuk-jin, a researcher at Samsung Securities, explained, “We expect the Santa rally to come sooner this year,” adding, “The key indicator is the exchange rate, which rose to 1,360 won last month but recently plummeted to the 1,290 won level.” The explanation is that while the dollar has fallen, Korean exports have successfully rebounded, leading to the relative strength of the won. When the won strengthens, the investment attractiveness of the domestic stock market usually increases.
Researcher Lee said, “Changes in the supply and demand environment are also positive, with foreigners (KRW 2.4 trillion) and institutions (KRW 2.1 trillion) net purchasing KOSPI this month,” and added, “It is time to actively utilize the indicators that have changed positively.”
In fact, uncertainty variables and risk factors that have been suppressing global stock markets, including KOSPI, are rapidly being eased this month. The upward pressure on 10-year bond interest rates has eased through a reduction in the U.S. Treasury bond issuance plan, a drop in the oil price level (below $80), and confirmation of an easing stance at the U.S. Federal Open Market Committee (FOMC) in November. Last week, the US price stability was reaffirmed, followed by improvements in China’s economic indicators, the US-China summit, and the passage of the US interim budget.
Lee Gyeong-min, a researcher at Daishin Securities, said, “The global financial market is rapidly escaping from three months of volatility and is in the process of normalization,” adding, “Even if there are fluctuations, the KOSPI is expected to continue its trend toward the 2,600 level within the year. “The direction has become clear,” he emphasizes.
Park Sang-hyeon, a researcher at Hi Investment & Securities, explained that there is a high possibility of a Santa rally this year, citing historical examples. The explanation is that if the S&P 500 index rises more than 5% from the beginning of the year to November 15th, stock prices rose from November 15th of that year until the end of the year.
In fact, over the past 22 years, if the S&P 500 index rose more than 5% by November 15th, the index always recorded a positive increase rate until the rest of the year. Even if we extend the period a little longer, all but four of the 30 instances of increases of more than 5% by November 15th over the past 50 years have seen year-end rallies. If the previous case is correct, the fact that the S&P 500 index rose 17.3% as of November 15th of this year suggests that the S&P 500 index is likely to rise further by the end of the year.
Researcher Park said, “After the announcement of U.S. consumer prices last month, the probability of expecting interest rates to be frozen at the FOMC meetings in December and January of next year has reached 100%, and the expectation of even an interest rate cut in the first half of next year is strengthening.” “We will have to watch the release of the indicators, but expectations that the war against inflation may end due to a further slowdown in price pressure in the United States may lead to a further decline in U.S. Treasury yields,” he analyzed.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.