[Good Morning Stock Market] "Stock Market Rises Reaffirming the Power of Liquidity... Upward Momentum Expected to Continue for a While"

[Asia Economy Reporter Eunmo Koo] Although foreign capital outflow from the domestic stock market is accelerating, the market is rising by reaffirming the power of liquidity, and this trend is expected to continue for the time being. The U.S. Republican and Democratic parties are in a deadlock over the economic stimulus package, making the reopening of Congress a potential variable, but since the Federal Reserve (Fed) has indicated an expansion of monetary policy, the upward momentum of the stock market is unlikely to be easily broken.

◆Daehun Han, SK Securities Researcher=The domestic stock market, where concerns about the second wave of COVID-19 continue, has recently seen an acceleration in foreign capital outflows. On the 31st of last month, net selling reached a staggering 1.6 trillion won, and on a weekly basis, about 2 trillion won of net selling was recorded. Nevertheless, the KOSPI rose. This is due to the power of liquidity. The Kakao Games subscription attracted 59 trillion won in funds, recording a competition rate of 1,525 to 1. This situation is not much different in the U.S. The U.S. SPAC index has been hitting all-time highs day after day and rose 8.2% last week. This reconfirms that the stock market is rising due to liquidity power regardless of fundamentals. This trend is expected to continue.

However, next week it will be necessary to watch the reopening of the U.S. Congress. The U.S. Congress has yet to pass the fifth economic stimulus package. Initially, the Democratic Party, which advocated for an additional stimulus package worth 3 trillion dollars, reduced the scale to 2.4 trillion dollars and recently delivered a plan reduced to 2.2 trillion dollars to the Republican Party. The Republican Party still stands firm, saying it cannot concede 1 trillion dollars. In particular, the additional weekly unemployment benefit of 600 dollars is a contentious issue. The U.S. Congress is expected to reopen next week, and attention is focused on whether an agreement will be reached. Noise is expected, and if negotiations fail again, disappointment may increase, so it is necessary to pay attention.

Although there are external variables such as the U.S. budget bill process and internal variables such as concerns about the domestic spread of COVID-19, the upward momentum of the stock market will not be easily broken. As the uncertain economic situation continues, the Fed has indicated an expansion of monetary policy. It is an excellent environment for investing in stocks. The outflow of foreign capital is not a big problem at the moment. Just as the correlation of individuals increased further after the recent low, massive liquidity in the market is driving the stock market's rise. Inflows of funds into growth stocks are also continuing. We maintain a positive view on these sectors.

◆Sangyoung Seo, Kiwoom Securities Researcher=The U.S. stock market sharply declined as stocks that had led the rise so far were rapidly sold off. This is expected to dampen investor sentiment as it may increase profit-taking desires for stocks that had large gains in the Korean stock market. Considering the significant gap between the stock market and other financial markets as well as economic indicators, volatility in the stock market is expected to expand inevitably in the future.

Meanwhile, the government announced the details of the ‘People-Participatory New Deal Fund’ the day before. However, since related stocks have already been largely reflected, the impact is expected to be limited. However, since this fund will be the largest policy fund ever, amounting to 20 trillion won (4 trillion won annually over five years), a strong performance of related stocks can be expected next year when the actual fund is established. Of course, there are still many institutional issues and investment products that need improvement, so the immediate impact may be limited. Ultimately, the Korean stock market is expected to see sell-offs mainly in the stocks that had led the rise, similar to the characteristics of the U.S. stock market.

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