Analysts Compare Current Market to 1980s ‘Three Lows Boom,’ Warning Against Waiting for Major Dips
The Kospi index has been setting new record highs day after day since the new year. While investors find it difficult to time their entry due to the index’s sharp short-term surge, many experts suggest capitalizing on minor corrections, warning, “Waiting for a major correction could cause you to miss the train.” This outlook stems from the judgment that the first quarter of this year, particularly January-February, is likely to be the peak period for expected returns in the first-half stock market.
The analysis that the first quarter, especially January-February, will be the decisive period for stock investment is rooted in the assessment that monetary policy, rather than corporate earnings, is the driving force behind the current bullish trend. Just as the 9% plunge in the Kospi in November last year was largely influenced by U.S. Federal Reserve officials’ calls for interest rate freezes, the year’s early rally is attributed to revived expectations of rate cuts after December’s consumer price index (CPI) fell short of forecasts.
Lee Eun-tak, a researcher at KB Securities, said, “In a bullish market, fundamentals are always strong, leaving monetary policy as the only variable.” He added, “As long as inflation remains stable, the U.S. Fed is likely to adopt a more dovish stance than market expectations. The first-quarter market environment is expected to be more favorable than ever.”
He drew attention to the similarity between the current market conditions and the ‘three lows boom’ period — the golden age of South Korea’s economy in the mid-1980s, characterized by low oil prices, a weak dollar, and low interest rates. While stock prices peaked in March-April then, most profits were concentrated in January-February. As the upward momentum slowed in March-April, offering fewer profit opportunities, he analyzed that this year’s decisive profit window would also be concentrated in the early months.
“The similarity might be coincidental, but when macroeconomic conditions align, investor behavior patterns tend to mirror the past,” Lee explained. “Considering the ample idle funds and the semiconductor sector’s sharp earnings improvement, this year’s first-half rally is also likely to peak in January-February.”
Additionally, the complexity of the macroeconomic environment expected in the second quarter serves as a backdrop for the market’s focus on the first quarter. During the past ‘three lows boom,’ the index plummeted 17.6% as soon as signals emerged that the rate-cut cycle was ending, erasing the first-half gains instantly. This year, once the market fully prices in rate-cut expectations, skepticism over “whether additional rate cuts are truly possible” could surge in the second quarter, triggering a wave of profit-taking.
“If the pattern mirrors the ‘three lows boom,’ the second quarter could see a sharp decline triggered by signals of an end to rate cuts,” Lee said. “Rather than waiting for a major correction, a strategy of gradual buying during minor corrections is advisable.”
