Fund Managers Cut Kospi Ceiling to 7,764, Eye U.S. Midterm Elections
Summary
- Domestic fund managers lowered the Kospi ceiling for the next three months to 7,764, while still viewing the recent market move as a phase of seeking a rebound after short-term overheating was eased.
- Fund managers picked artificial intelligence (AI) at 79.2% and semiconductors at 73.6% as the most promising sectors and themes for the next three months, signaling that expectations for semiconductors to lead on their own have weakened.
- Respondents said the factors likely to have the biggest impact on stocks over the next three months include the U.S. midterm elections, the durability of AI and semiconductor industry conditions, and additional Fed rate hikes.
Forecast Trend Report by Period
Domestic fund managers have sharply lowered their outlook for the Kospi over the next three months. Even so, most view the recent correction not as the start of a full-fledged bear market but as a phase of working off short-term overheating before a rebound.
A survey of 53 fund managers at 12 South Korean asset managers conducted by the Korea Economic Daily found the average upper end of the Kospi's three-month range at 7,764 as of Sept. 25. That was 1,866 points below the 9,630 projected in the previous June survey. The average lower end also fell to 6,051 from 7,478 over the same period.
Despite the lower index targets, respondents were relatively optimistic about the market's direction. Some 71.7% described recent market moves as a bid to rebound after short-term overheating was eased. Another 20.8% expected a prolonged range-bound market, while only 1.9% said stocks were entering a full-fledged downturn.
For the fourth quarter, 66.0% forecast a pattern of early weakness followed by a recovery later in the period. That suggests many expect investor sentiment to improve toward year-end even if market volatility continues.
Views on market leadership also shifted. Asked which sectors or themes looked most promising over the next three months, 79.2% chose artificial intelligence, while 73.6% picked semiconductors. In June, 95.2% had selected semiconductors, indicating expectations for the sector to lead the market on its own have weakened somewhat.
The most-cited cause of the recent market correction was concern over a semiconductor peak-out, named by 62.3% of respondents. That was followed by growing concentration in leveraged bets on individual stocks at 41.5%, rising oil prices and interest rates tied to Middle East risks at 34.0%, and margin calls and deleveraging by overseas hedge funds at 32.1%.
Respondents identified the U.S. midterm elections as the single biggest variable for the stock market over the next three months. Some 52.8% cited the election outcome as a key factor, followed by the durability of AI and semiconductor industry conditions at 49.1%. Additional Federal Reserve rate hikes stood at 41.5%, rising bond yields at 37.7%, and commodity prices and inflation at 34.0%.
Expectations for corporate earnings remained strong. Fully 98.1% of respondents said operating profit at domestically listed companies would rise in the third quarter from a year earlier. Another 81.1% said corporate investment would increase over the next 12 months.
With index expectations reset lower, the U.S. midterm elections, interest rates and semiconductor industry conditions are poised to shape the direction of the stock market in the fourth quarter.
