The KOSPI index saw a significant increase in December, but it has undergone a sharp downturn since the beginning of this year.
Last December, the KOSPI index experienced a rise of approximately 5%, which was dubbed as the ‘Santa Claus Rally’. However, the trend has been quite different at the start of this year. Over the first 12 trading days, the index has declined for 10 days, which is one of the most disappointing stock market trends among major countries.
There are several factors contributing to this trend, including weakened expectations for an early interest rate cut in the United States, poor corporate performance, and geopolitical risks. As a result, there seems to be a push for institutional selling in the market, with some analysts suggesting that funds are moving towards the Japanese stock market.
In light of these developments, experts are advising investors to focus on risk management over increasing stock holdings for the time being.
The KOSPI index, which ended at 2655.28 in 2023, suffered a massive decline of 8.26% during the closing on Jan. 17, 2024, according to the Korea Exchange (KRX).
This drop is the highest among all major global stock markets. During the same period, the U.S. Dow Jones Industrial Average decreased by only 0.87 percent, while the UK FTSE index fell by 2.26 percent. China’s Shanghai Composite Index (SSE Composite Index), which is also struggling in economic recovery, had a fluctuation rate of -4.85 percent, which is better than Korea’s. Japan’s Nikkei 225 Index has increased by 6.02 percent since the beginning of the year.
The atmosphere in the stock market was not like this until last month. At the end of November last year, the KOSPI index was at 2535.29, but it rose by 4.73 percent in December.
The rise in the KOSPI index is mainly due to the government’s efforts to boost the stock market. These measures include the ban on short selling and the easing of capital gains tax criteria for major shareholders. The indication from the U.S. Federal Reserve (Fed) about a potential interest rate cut has also contributed to this increase. Compared to the end of 2022, the KOSPI index has risen by 18.7 percent annually.
The KOSPI index initially rose by 0.55 percent on Jan. 2, the first trading day of the year, and it appeared to continue the trend.
However, from the next day, Jan. 3, the index started to decline, and it recorded losses on all trading days except for the 15th. On the 17th, it recorded a drop of 2.47 percent, giving back all the gains from December.
Lee Kyung-Min, an analyst at Daishin Securities, said, “This is the worst monthly performance since December 2022.”
The Korean stock market experienced a more severe decline than anticipated at the beginning of the year, according to experts.
This is believed to be due to the decrease in early interest rate cut expectations, a worsening institutional supply and demand, weakening profit momentum, and uncertainties in both domestic and international geopolitical factors. While some correction was expected after the sharp rise at the end of last year, the accumulation of negative factors has significantly impacted investor sentiment.
