KOSPI has room to rise on low valuations, but US inflation and rates remain key

The KOSPI may have room to rise because its valuation has fallen sharply, but South Korean stocks still face a decisive test from US interest rates. Analysts say the market needs US Treasury yields to stabilize before it can turn firmly higher.

The main variables next week will be the US producer price index on Sept. 10 and the consumer price index on Sept. 11, both released in US time. Investors will also watch whether the yield on 10-year US Treasury bonds moves above 5%.

Concern about another US rate hike returned after employment data released on Sept. 4 came in stronger than expected. The Chicago Mercantile Exchange’s FedWatch tool showed the probability of a 25-basis-point rate increase at the September meeting rising from 49.4% the previous day to 58.4%.

Analysts continue to favor semiconductor stocks despite the pressure from interest rates. They say the KOSPI’s fundamentals, including corporate performance and exports, remain sound, but a 10-year Treasury yield above 5% could trigger a correction in share prices.