[Good Morning Stock Market] Divergence Appears Between Han and US Stock Markets... "Need to Watch Differentiating Factors"

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[Asia Economy Reporter Kum Boryeong] Although the U.S. stock market has shown a sluggish trend this month, the Korean stock market has demonstrated relatively resilient performance. Since the two markets generally exhibit a high correlation, concerns have been raised about whether the relative strength recovery of the Korean stock market can be sustained. Experts analyze that it is necessary to observe the differentiating factors between the two markets.

◆ Jo Byunghyun, Researcher at Yuanta Securities = Recently, a divergence has appeared between the U.S. and Korean stock markets. Despite the sluggishness of the U.S. market, the Korean market has shown relatively steady momentum. To conclude, there are several factors suggesting the likelihood that the relative strength of the Korean stock market will maintain an advantage.

The liquidity environment, including the supply-demand flow mainly formed by individual investors and the still high level of surrounding funds in the market, can be seen as grounds for the Korean stock market to continue its favorable trend. Furthermore, fundamental-related indicators also show the relative strength of the Korean market outperforming. The year-over-year growth rate of the 12-month forward EPS for the MSCI Korea Index was 36.7% as of last week. In the U.S., it was 13.4%, indicating relatively higher expectations for earnings growth in Korea. Meanwhile, as seen in the chart, the relative strength in terms of forward EPS also shows Korea’s relative strength moving away from the bottom, which is worth noting as it empirically resembles stock price trends.

The cargo volume at U.S. West Coast ports has already recovered. Although concerns about the U.S. economy remain, attention should be paid to the fact that cargo volume at the West Coast ports, which serve as trade gateways with the Asian region, has recovered to peak levels. Trade volume, which had contracted at the beginning of the year, is rapidly recovering, and considering last year’s low base and seasonality, positive effects on Korean exports can be expected.

The U.S. inventory cycle has fallen to recession levels at least as low as during the IT bubble burst and is likely entering an accumulation phase again. Even without assuming a sharp recovery in U.S. consumer demand toward the end of the year, expectations for the inventory cycle can be considered. Ultimately, this can be seen as a factor for the recovery of additional inbound cargo volume, which in turn provides a likelihood for Korean exports to continue their recovery trend.

◆ Kim Seunghyun, Researcher at Yuanta Securities = As the U.S. becomes unstable, interest in whether the Korean stock market is decoupling has increased. There are two aspects to watch as differentiating factors going forward.

First is the somewhat different liquidity environment. Along with the expansion of direct investment by individual investors as buyers, the movement of funds from bonds and alternative investments into stocks is also of interest. Although it has not received much attention, Korea has recently experienced a relatively large rise in interest rates. The 10-year rate rose by about 30 basis points, causing changes. Since August, net assets relative to the amount set, i.e., earnings, for equity funds have been +2.8 trillion KRW, while bond funds have been -0.5 trillion KRW. It has become a time to reconsider asset allocation.

Second is the cycle. Korea’s indicators mostly show a double dip due to the reflection of two adverse events: the trade dispute and COVID-19. For example, exports were down 10% last year, especially sluggish from August to November. For the time being, the base effect is valid, and even if the economic recovery after COVID-19 is slow, indicator improvement is possible.

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