Recommendation: TACTICAL OVERWEIGHT/BUY

After a one-month losing streak, the KOSPI recorded a historic back-to-back rise from Monday to Wednesday, amounting in total to 233.19 points (+15.82%). During the preceding month, up until the onset of this historic rally, the KOSPI had plunged from 2,243.59 points to 1,457.64 points (-35.03%). Following the three-day surge, the KOSPI continued its rebound and has recently recovered to 1,717.73 points (+17.84%) as of this Friday.

Observing the speed of this rebound, the majority of retail investors—many of them new entrants expecting a recovery as dramatic as the recent collapse—appear to assume that this is the optimal moment to buy at the bottom, believing that the KOSPI is now prepared to enter a bull market. News articles report that the number of newly created brokerage accounts is rising rapidly every single day.

My view that the recent crash was driven more by sentiment than by fundamentals remains valid. I have maintained since last month that there would be no harm in purchasing a substantial amount of stocks when the KOSPI traded below 1,500, so those who bought the stocks below the 1,500 level should have little cause for concern; I am writing this to the new entrants attracted by the recent surge. Even though sentiment was the primary reason for the crash, the real economy, not just financial markets, also sustained a substantive impact. Commercial activity remains paralyzed or suspended altogether, and the Wuhan coronavirus issue persists both domestically and globally. Although the KOSPI is staging a sharp rebound immediately after hitting 1,457.64, I find no fundamental justification for the velocity of this recovery. Furthermore, as KOSPI and KOSDAQ stocks are still broadly cheap—even cheaper than they were in 2008—there is no significant opportunity cost in waiting just a little longer to verify a definitive bottom; stock prices will still remain cheap next week. After all, what if 1,457 was not the absolute nadir?

All relevant financial policies, both monetary and fiscal, have already been announced. These enormous stimulus plans are highly likely to induce a long-term surge in the stock market. However, even if the market rises in the long term, nobody knows how long it will take before a genuine rebound begins. Buy the fear if you can remain calm in the face of the ongoing turmoil; if you cannot, step aside for a little longer. High returns inevitably entail high risks. Who knows whether the market will undergo a single dip, double dips, or triple dips before a sustained recovery begins?

Especially if this is the first investment of your lifetime, I strongly recommend that you begin investing only after this chaos of insane volatility has subsided. It would be ill-advised to wait indefinitely for an indisputable upward trend. Even when the Fed announced unlimited QE last week (2020.03.23.) during the trading session, NASDAQ futures surged by about 500 points immediately after the announcement but then pulled back by roughly the same amount over the following three hours; the market reacted in much the same way to the mid-session Wuhan coronavirus stimulus package announcement as well, which amounted to USD 2 trillion.

To be clear, this is not an argument for total divestment. Given the equity at a historical valuation trough, now is definitely a great time to start accumulating stocks until the current bearish phase finally ends (if it has not ended yet). However, I am just uncertain whether it is the right time to bet all-in or to employ leverage. Not only can no one forecast the absolute bottom with precision, but sharp fluctuations always entail volatile movements until a trend and its direction are firmly settled.

Therefore, here is my suggestion:
First, observe the market carefully until the end of next week to check if the bearish phase has truly ended. Rather than excessively increasing exposure immediately, it would be better to wait until the fear and insanity currently dominating the market have subsided. In the meantime, do some research on the firms and industries that interest you, so that you can keep yourself calm after establishing a position in the midst of volatile movements.

If what you seek is simply to make a fortune out of unpredictable chaos, you would be better off at the nearest casino. In the current market, playing blackjack might well be less risky than investing in stocks with such a mindset.