[Good Morning Stock Market] Persistent Risk Asset Preference... Year-End Rally Continues into New Year

Economic Stimulus Implementation, Sanctions on Chinese Companies Raise Expectations for Benefits in Korean IT Industry

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] There are forecasts that the rising market seen at the end of last year will continue into the new year. This is not simply due to expectations of a market rally at the beginning of the year, but because risk asset preference sentiment can still persist through reduced market uncertainty and supply-demand momentum.

◆ Kim Daejun, Researcher at Korea Investment & Securities = The KOSPI is expected to rise in January. This is a continuation of the upward trend from December last year. This forecast is not based on the random January effect (a phenomenon where stock price increases are relatively higher compared to other months). Various news confirmed in the U.S. at the end of the year support the bullish outlook.

First, political uncertainty is being resolved with the loss of veto power by President Donald Trump. Last month, President Trump refused to sign the 2021 National Defense Authorization Act (NDAA), which had passed both houses of Congress, citing overseas U.S. troop reductions and the repeal of Section 230 of the Communications Decency Act as reasons. However, unlike in the past when Congress approved eight vetoes, this time, through a re-vote, more than two-thirds of the votes were secured, effectively nullifying President Trump's influence. The market is also excluding the 'Trump risk' and newly recognizing the possibility of bipartisan cooperation.

A stable atmosphere is also felt in the financial markets. The Chicago Board Options Exchange Volatility Index (VIX), which measures fear sentiment, is below the one-year average, and the dollar, related to safe-haven asset preference, remains weak. Although President Trump is campaigning ahead of the Georgia Senate election on the 5th, his influence on the market is close to zero. In fact, the market has effectively erased the Trump variable. This atmosphere is likely to continue until the Biden administration is established on the 20th.

Additional stimulus measures are also a key factor. First, it was effective that President Trump did not push for a $2,000 cash payment and instead signed the existing stimulus package. Thanks to this, the U.S. economy can continue its recovery path without major damage. The cash payment of $600 per person starting from the week of the 29th of last month also helps maintain consumption. Although this stimulus package is a temporary measure, it serves as a bridge to prevent disruption in the economic flow until the next administration's policies are introduced. According to the University of Michigan Consumer Sentiment Index, consumption momentum has not yet normalized, but considering the effects of current and future stimulus measures, sentiment is likely to improve from now. The rise in interest rate spreads and expected inflation also suggests a positive outlook across the market. The stock market is expected to fully reflect these changes.

Sanctions on Chinese companies are also important. This suggests the possibility of a windfall benefit. On December 31 last year, the New York Stock Exchange (NYSE) announced it would suspend trading of American Depositary Receipts (ADRs) of three companies?China Mobile, China Telecom, and China Unicom?from January 7 to 11. This is a result of President Trump's November executive order banning U.S. citizens from investing in companies linked to the Chinese military. Some argue that the delisting from the New York Stock Exchange is not a big issue because of the Hong Kong and Shanghai stock exchanges, but if this is seen as the start of China containment and investment horizons are expanded globally, the perception changes significantly.

If financial sanctions against China intensify, countries other than China will gain windfall benefits. The likely beneficiaries are countries that can replace China and maintain friendly relations with the U.S. South Korea and Taiwan are strong candidates. Even with a change in administration, the view on China remains similar to the previous government. Over time, interest will increasingly shift to countries that can replace China, and such countries are already attracting attention in global stock markets. South Korea's IT sector has great potential. The Korean IT industry is in significant competition with China overseas. If Chinese IT falters, Korea can sufficiently fill that gap.

◆ Moon Namjung, Researcher at Daishin Securities = Based on the January effect, the U.S. stock market will challenge historical highs again. Two factors encourage investors' optimistic outlook by allowing the widening gap between the real economy and the stock market after the Santa rally. First, within the broad policy framework of the Biden administration's inauguration, the fifth economic stimulus package worth $892 billion was passed with President Trump's signature on the 27th of last month, accelerating the pace of economic recovery. The runoff election for the Georgia Senate on the 5th has recently seen a rise in support for Democratic candidates in polls, raising the possibility of a turnaround. If the Democrats win both Georgia Senate seats, the Biden administration's governance is expected to gain momentum.

The distribution of COVID-19 vaccines may increase psychological expectations of returning to pre-pandemic normalcy. As of January 1, the cumulative number of confirmed COVID-19 cases in the U.S. reached 20,007,149, accounting for 6% of the total population. The cumulative death toll is 346,043, surpassing major European countries. As the COVID-19 situation worsens, vaccination efforts are inevitably accelerating. According to the U.S. Centers for Disease Control and Prevention, 2,589,125 people had been vaccinated as of December 30 last year, with 470,000 additional doses administered within just two days after 2,127,000 doses were given by the 28th. Vaccinations are expected to be completed for the current cumulative confirmed cases by mid-March. As the COVID-19 vaccine rollout speeds up, psychological stability from vaccination rather than vaccine side effects will be highlighted in the new year, also influencing stock market stability.

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