Analysts mixed on Kospi outlook this year on when Fed could slow rate hike

[Photo by MK DB]

As the Korea Composite Stock Price Index has risen more than five percent in the last six trading days, a minority view that this year’s stock market will be “strong in the first half and weak in the second half’’ is gaining interest. At the end of last year, most securities firms had predicted the opposite.

Earlier on Monday, five out of seven securities firms--Mirae Asset Securities Co., NH Investment & Securities Co., Samsung Securities Co., Meritz Securities Co. and Kiwoom Securities Co. -- forecast the market to start weak and end strong, while two -- Hana Securities Co. and HI Investment & Securities Co. -- predicted “start strong, end weak,” according to Maeil Business Newspaper. The mixed views came as the firms differently assessed the time when the stock market would react to a slowing interest rate hike in the U.S.

The “minority opinion” predicted that the U.S. Federal Reserve’s move to stop the interest rate hike itself would provide momentum to stock prices. It sees the rebound would be greater as positive factors such as the slowing rate hikes and upward trend of the Chinese stock market are likely to unfold mostly in the first half of the year.

“It’s likely that the rebound in the first half will be greater than the second half,” said Lee Woong-chan, an analyst at HI Investment, after citing lower U.S. share prices, Chinese economic recovery and slowing interest rate as reasons behind his analysis. “Although concerns over the U.S. economy remain, stock prices are already cheap and China’s economic momentum and U.S. interest rate hike suspension will take place in the first half of the year. The South Korean stock market will not underperform when the Chinese economy recovers and Hang Seng Index is strong.”

Some also say there will be a bigger rise in the stock market in the first half of the year due to recovery expectations for major domestic industries from semiconductors, steel and chemicals. “Semiconductor, steel and chemical companies that performed poorly last year are expected to turn around in the second half, and stocks are the first to respond,” Hwang Seung-taek, head of Hana Securities Research Center, who predicted Kospi to perform better in the first half of the year, said.

On the contrary, the majority opinion that forecast a stronger second half saw the slowing interest rate hike to affect the stock market in the latter half of the year.

“For the stock market to rebound, the benchmark interest rate must be higher than the consumer price index,” Lee Kyung-soo, head of the research center at Meritz Securities, said. “If the Fed raises the base rate in February and March by 50 and 25 base points, respectively, it is expected to reach 5 to 5.25 percent, and the interest rate is expected to go higher than consumer prices around April and May.”

Some other experts also say stock prices would recover their upward momentum as earnings of major domestic companies improve in the second half of the year. “In the second half, leading economic indicators and corporate performances are likely to improve and there can be growing anticipation for a lower interest rate toward the end of the year,” Seo Chul-soo, head of Mirae Asset Securities Research Center, said.

However, securities experts believe that Kospi can’t go up much more from the current level. Both HI Investment and Hana Securities predicted the upper limit of Kospi to be around 2550 and 2600 and most of the securities companies that expected a better half for the year’s second half said 2600, except for Kiwoom Securities that said the peak would be 2700.