[Edaily Reporter Kim Kyung-eun ] Forecasts suggest that market volatility will gradually ease as the deleveraging phase—which shook the domestic stock market last month—enters its final stages. Analysts say a full-fledged rebound in the KOSPI will only be possible once foreign investors are confirmed to have shifted to a buying stance.

Lee Kyung-soo, an analyst at Hana Securities, stated in a report on the 5th, “July was a period when seasonal characteristics manifested extremely strongly, as profit-taking and rotation following first-half performance coincided with semiconductor volatility caused by the accumulation of excessive leverage,” adding, “We are now detecting signs that the market is emerging from that phase.”

He cited the rapid deleveraging of the domestic stock market as the primary evidence. The combined total of margin loans and short positions for domestically listed companies has decreased from 42 trillion won in June to the current level of 29 trillion won. As the pace of this decline has recently accelerated, he assessed that forced liquidations are entering their final stages.

The analysis also indicates that the supply-and-demand environment is improving. The analyst explained, “We are seeing a shift where capital inflows into index-based ETFs are outpacing those into single-stock leveraged ETFs,” adding, “Supply and demand are spreading across the market as a whole rather than concentrating on specific stocks.”

The government’s real estate tax reform plan was also assessed as a favorable factor for the stock market. The analyst noted, “This tax reform plan significantly reduces the investment appeal of real estate,” adding, “It is likely to act as a factor that gradually stimulates a ‘MoneyMove’—where funds shift from real estate to the stock market—as intended by the government.”

However, the assessment is that a sustained upward trend in the KOSPI will still take time.

He assessed, “While the U.S. stock market has been rebounding since August, led by Big Tech stocks that had suffered sharp declines, the Korean stock market is more likely to first demonstrate ‘downward rigidity’—where further downward pressure is limited—rather than directly benefiting from the U.S.-led rebound.”

He continued, “The current underperformance of the Korean stock market is structurally similar to the early stages of the U.S.-China trade dispute in 2018,” explaining, “Back then, while the U.S. stock market rebounded first, Korea experienced further declines due to foreign selling; a full-fledged rebound began only after foreign investors switched to buying.”

The analyst predicted that, this time as well, the market will continue to focus on individual stocks rather than the index until foreign investors’ buying—driven by portfolio rebalancing—is confirmed.

The analyst stated, “A trend-based rebound in the KOSPI will begin in earnest only after foreign investors are confirmed to be increasing their exposure to the Korean market,” adding, “Until then, alpha strategies focused on the KOSDAQ and individual stocks are likely to dominate the market.”

As promising stocks for August, he highlighted those that had experienced significant declines following the sharp index drop and are now showing improved earnings outlooks. Specifically, he cited L&F(066970), Hanwha Ocean(042660), CJ Corp.(001040), SK hynix(000660), HD HYUNDAI HEAVY INDUSTRIES(329180), SKC(011790), Hanwha(000880), and APR(278470).

Additionally, regarding this month’s regular MSCI Korea Index review, the firm viewed the inclusion of LG Innotek(011070)as highly likely. It projected that HLB INC.(028300), LG Display(034220), and Yuhan(000100)were likely to be removed from the index. As stocks to watch ahead of the November review, the firm highlighted HyundaiAutoever(307950), LS(006260), #SamsungE&A, Rainbow Robotics(277810), and SamsungSecurities(016360).