KOSPI, despite expectations for a Christmas rally, the "uncertainty variables" still exist... Exchange Rate and AI influence the market.

As the end of the year approaches, the Korea Composite Stock Price Index (KOSPI) shows signs of a Rebound, but the market generally assesses that the unsettling factors that previously suppressed the overall market have not been completely eliminated. Especially after entering late December, the market's attention to the so-called “Santa Claus Rally” (the phenomenon of a strong stock market at year-end) has increased, but the uncertainty surrounding the Exchange Rate and the artificial intelligence (AI) industry still influences the market atmosphere.

On the 19th, the KOSPI closed at 4020.55 points, up 26.04 points (0.65%) from the previous trading day, successfully achieving a short-term Rebound. However, analysts believe it is still too early to conclude that a formal upward trend has begun. Especially in light of the recent continuous net selling by foreign investors, the Bank of Japan's (BOJ) interest rate hike decision and the concerns regarding the volatility of the Exchange Rate surrounding this decision seem to be affecting both the foreign exchange market and the stock market.

Although the Bank of Japan raised the benchmark interest rate to 0.75% as the market expected, the yen did not strengthen temporarily as anticipated, but instead showed weakness. Although the result did not bring an immediate impact, the medium- to long-term effects of such policy changes on the capital markets still need to be closely followed. Particularly, the weakness of the yen is related to whether yen carry trade (the strategy of borrowing low-interest yen to invest in high-yield assets) can continue, which may affect asset prices in the Asian region.

On the other hand, the US stock market continued its strength led by technology stocks. On the 19th local time in New York, the Dow Jones index rose by 0.38%, the S&P 500 index increased by 0.88%, and the Nasdaq index climbed by 1.31%. This is a result of Micron Technology's strong performance and the news of Oracle's collaboration with ByteDance, which stimulated positive investor sentiment. Consequently, warmth spread throughout the entire technology sector, temporarily easing skepticism about the AI industry.

This global trend has also helped domestic investment sentiment. The MSCI Korea ETF rose by 1.41%, the Emerging Markets ETF increased by 0.98%, and the KOSPI 200 night futures ended trading up by 1.45%. The Philadelphia Semiconductor Index also rose by 2.98%, raising market expectations for the entire technology sector. However, the weak Korean won and concerns over the profitability of the AI industry remain potential factors that could put the brakes on the “Santa Claus rally.”

Although experts do not rule out the possibility of a “Santa Claus rally,” they are more focused on the potential for short-term adjustments. Li Jingmin, a researcher at Daxin Securities, pointed out: “Market risk indicators and the volatility index are fluctuating at relatively low levels, which implies the possibility of transforming into a short-term risk aversion signal.” He added: “If we take the end of the year as a starting point, and the overheating phenomenon of the stock market is adjusted to a certain extent, there may be buying opportunities to prepare for the upward trend expected in the first half of next year.”

At the same time, financial authorities have also begun to improve the system to activate the KOSDAQ market. The Financial Services Commission announced a policy to lower the threshold for institutional investors such as pension funds to enter the KOSDAQ market, and to provide tax incentives for funds investing in the growth of enterprises. This is expected to become a factor in enhancing expectations for the KOSDAQ market.

Such capital flows are likely to amplify investment sentiment fluctuations at the end of the year, thereby determining the short-term direction of the market. Predictions suggest that if uncertainties are resolved to some extent, a more stable upward trend may begin early next year. However, changes in global monetary policy, exchange rate trends, and assessments of the profitability of tech stocks are still expected to play a variable role.