As South Korean stocks keep pushing to record highs, attention is focusing on variables likely to move the market next. The market sees the leadership rally, centred on semiconductors, likely to continue for the time being despite concerns about short-term overheating. Still, sector-by-sector share moves are expected to diverge depending on the U.S. Federal Reserve’s policy rate decision, whether the dollar shifts into weakness and the trend in international oil prices.

On April 24, the KOSPI ended slightly lower, down 0.18 points, or 0.00 percent, at 6,475.63. The Kosdaq rose 29.53 points, or 2.51 percent, to 1,203.84, closing above 1,200 for the first time since Aug. 4, 2000, on a closing-price basis.

With South Korean stocks posting record highs day after day, some assessments say the market has entered uncharted territory. Global stock markets, including the United States and Japan, are also continuing a streak of record highs. But given the rapid pace of gains, the Fed’s policy stance, the dollar’s direction and oil-price volatility are cited as near-term variables.

The industry is pointing to interest rates as a key variable for U.S. stocks and the dollar as a key variable for South Korean stocks. Conditions for a bull market are the maintenance of liquidity and an expansion of the economic and earnings cycle, and an analysis says global liquidity is continuing at an all-time high level.

Semiconductors are still seen as the core leaders. As profit forecasts for Samsung Electronics and SK Hynix are being revised up quickly, the semiconductor sector’s 12-month expected net profit is at an all-time high.

The 12-month expected price-to-earnings ratio for KOSPI semiconductors remains in the 5-times range, and the market sees room for further re-rating when compared with global semiconductor companies.

Whether the dollar weakens is also an important variable for South Korean stocks. If the likelihood of a Fed policy rate cut rises, dollar weakness could emerge, and this could lead to improved foreign buying, the market judges.

In past periods of dollar weakness, sectors that saw strong net foreign buying included machinery, information technology hardware, shipbuilding, defence and chemicals.

The earnings season is also a factor that could determine the market’s direction. In the fifth week of April, major companies including Samsung Electronics, Samsung Biologics, LG Electronics, Naver, Samsung Heavy Industries and Hanwha Aerospace are scheduled to report results. If results from major companies at home and abroad meet market expectations, confidence in the post-record-high market could increase.

Stability in international oil prices is also a variable. An analysis says if West Texas Intermediate (WTI) falls from around $90 a barrel to the $80 range, the likelihood rises of improved operating profit margins in the secondary battery and energy sectors.

Another positive factor for related sectors is that funds are flowing into global renewable energy and battery exchange-traded funds (ETFs).

The industry sees the stock market likely to move up and down for the time being between the burden of record highs and earnings expectations. It advises maintaining a semiconductor-led trend while broadening portfolios to include beneficiaries of a weaker dollar and sectors with improving earnings.

In the near term, the FOMC outcome, U.S. inflation indicators, the direction of international oil prices and earnings releases by major South Korean companies are expected to sway investor sentiment. With the market already up substantially, a differentiated market is likely to continue depending on profit improvements by sector and changes in foreign flows.

Lee Jae-man (이재만), an analyst at Hana Securities, said, "If the likelihood of a Fed policy rate cut rises, the chances are high that a structure of dollar weakness will form." He added, "For the KOSPI, whether foreign buying in semiconductors improves and whether the PER rises will determine the index’s upper end."

Moon Nam-joong (문남중), an analyst at Daishin Securities, said, "Even though hawkish monetary policy decisions by major-country central banks are expected, global stocks will respond more to the steps toward ending the Iran war, solid corporate earnings in the United States and expectations for AI growth." He added, "In the relief-rally phase expected through May, a shallow expansion of volatility will be an opportunity to increase exposure."