[Good Morning Stock Market] Global Liquidity Remains... It's a Matter of Speed Rather Than Direction

Concerns Over COVID-19 Spread Persist... Short-Term Instability May Increase

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Global economic indicators such as U.S. retail sales and China's gross domestic product (GDP) growth rate are showing positive trends. Amid persistent liquidity and expectations for economic recovery, the upward momentum of global stock markets remains intact. However, there are many variables that could trigger anxiety, including escalating tensions between the U.S. and China, concerns about the pace of economic recovery, and disappointment if earnings fall short of expectations, so caution is advised.

◆ Kyungmin Lee, Researcher at Daishin Securities = While global liquidity momentum remains effective, positive changes in medium- to long-term trends are becoming visible. The COVID-19 situation is calming down and economic activities are normalizing in many regions including China, South Korea, Europe, as well as New York and New Jersey in the U.S. U.S. industrial production and retail sales in June increased by 5.4% and 7.5% month-on-month, respectively, surpassing market consensus (4.3%, 5%). China's Q2 GDP growth rate also grew 3.2% year-on-year, exceeding the market expectation of 2.5%. Thanks to the reopening of economic activities and monetary, fiscal, and financial policies responding to COVID-19 in major countries, the economic recovery trend is expected to continue.

Nevertheless, global stock markets reversed downward in the latter part of last week. This appears to have been influenced by escalating U.S.-China tensions, Chinese consumption indicators falling short of expectations, and weakening hopes for additional economic stimulus measures. However, this is judged to be due to a slowdown in surprise momentum following earlier optimism and growing anxiety about future prospects. In particular, the surge in COVID-19 cases in the U.S. is a variable that intensifies debates about the speed of the U.S. economic recovery. The U.S. Federal Reserve (Fed) noted in its Beige Book that while economic activity is increasing, it remains well below pre-COVID-19 levels, and expressed concern that the outlook is very uncertain, closely monitoring the course of the pandemic.

Ultimately, in the short term, it is necessary to be cautious as there are increasing variables that could trigger anxiety amid heightened overheating and valuation pressures. Due to elevated expectations, the financial market’s sensitivity to surprise momentum is decreasing, and if results fall short of expectations, investor disappointment and anxiety about the pace of economic recovery could increase stock price sensitivity.

◆ Yaeun Kim, Researcher at IBK Securities = The market is fluctuating within a narrow range due to both positive and negative factors. For this trend to change, one factor must stand out more significantly than the other, but they are currently offsetting each other. As risks are gradually expanding, attention to external risks is necessary.

While global economic uncertainty is highlighted due to the spread of COVID-19, concerns about the domestic economy are also growing. Although Q2 growth rates will be announced this week, Bank of Korea Governor Lee Ju-yeol forecasted that compared to the May outlook, the acceleration of COVID-19 spread is expected to negatively impact growth rates. Exports from July 1 to 10 decreased by 1.7% year-on-year, partially reviving expectations for economic improvement, but as the influence of COVID-19 continues to spread, rapid improvement in market conditions seems unlikely.

Therefore, rather than an overall rise in indices, differentiated performance by individual stocks and sectors is expected to continue. Since valuation pressures remain, profit-taking selling may emerge, putting downward pressure on indices. Growth stocks rose sharply due to expectations for government policies and changes in global industries, but profit-taking selling returned amid hopes for economic improvement, leading to a rebound in value stocks. However, considering external risks, a rotation market is expected to continue. Thus, a short-term perspective is recommended for now.

This content was produced with the assistance of AI translation services.