SEOUL — South Korea's benchmark KOSPI index is expected to face a volatile week, likely remaining highly sensitive to negative news as investors grow cautious ahead of a major five-day holiday break. Market analysts predict that the index will prioritize downside risks over potential positive catalysts, projecting a trading range of 3,200 to 3,500 points for the week of September 29 to October 2.

The current cautious sentiment is largely being driven by two main factors: lingering concerns over global equity valuations following recent comments by U.S. Federal Reserve Chair Jerome Powell, and the specter of a potential U.S. government shutdown.

Powell's 'Fairly Highly Valued' Remark Weighs on Sentiment 

Fed Chair Jerome Powell's recent statement that stock prices are "fairly highly valued" has cast a shadow over market sentiment. Analysts at NH Investment & Securities noted that the remark served as an indirect expression of worry regarding overall market valuations. Researcher Nah Jung-hwan drew a parallel between Powell's comment and former Fed Chair Alan Greenspan's famous "irrational exuberance" speech in 1996, which preceded a brief market correction.

While acknowledging the historical echo, Nah suggested that a sustained downturn is unlikely. "This valuation burden could be an excuse for profit-taking, but we anticipate a rebound after a temporary correction, similar to what happened in the past," he explained. Nevertheless, the statement has fueled short-term concerns, coming as the KOSPI's forward price-to-earnings (PER) ratio recently hit 11.1x and its price-to-book ratio (PBR) reached 1.08x, raising immediate overvaluation worries.

U.S. Shutdown Risk and Chuseok Holiday Add to Anxiety 

Compounding the anxiety is the looming possibility of a U.S. government shutdown as the federal fiscal year-end approaches (September 30, local time). Although actual shutdowns are infrequent, the precedent set in late 2018 underscores the risk. An operational halt in the U.S. government could trigger fresh economic uncertainty, including delayed government salaries and a suspension of non-essential public services, further dampening global investor risk appetite. Analysts fear this unresolved political drama could provide another trigger for investors to lock in recent profits.

Locally, the upcoming Chuseok holiday (Korean Thanksgiving) is prompting additional caution. With the domestic stock market scheduled for a five-consecutive trading day closure starting October 3, investors are increasingly inclined toward a risk-off approach. As Daishin Securities researcher Lee Kyung-min noted, the convergence of various issues ahead of the long break increases the likelihood of a risk-aversion surge, potentially exacerbating the desire for profit-taking.

Strategy: Low-Cost Buying for Solid Performers Post-Correction 

Despite the near-term headwinds, market experts are advising investors to adopt a selective, long-term perspective. They recommend using any upcoming market correction as an opportunity to strategically purchase stocks of companies with robust earnings outlooks.

Nah Jung-hwan suggested focusing on sectors with rapidly improving earnings forecasts or those benefiting from the global AI transition, specifically naming semiconductors, AI software, and robotics. His top picks include major players like Samsung Electronics, alongside companies such as LG CNS, Hyundai Mobis, Kiwoom Securities, Samyang Foods, and Lotte Tour Development.

Lee Kyung-min echoed this sentiment, suggesting that starting around the 3,200-point level, investors should look for value in rotation among undervalued sectors. He also highlighted that low-cost buying in undervalued biotechnology and secondary battery (EV battery) sectors remains a viable strategy.

The consensus remains that while the short-term outlook is clouded by global risk factors and pre-holiday anxiety, the market's underlying strength, supported by solid corporate earnings expected post-holiday, should eventually lead to a bounce-back.

[Copyright (c) Global Economic Times. All Rights Reserved.]