[Good Morning Stock Market] Tightening Uncertainty Eased... Should We Focus on Kospi 'Earnings'?

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), acknowledged on the 17th (local time) that some assets are overvalued but drew a line by stating that it is not the time to discuss tightening policies. Chairman Powell made these remarks during a press conference held after the Federal Open Market Committee (FOMC) decided to maintain the "zero interest rate" policy. He also indicated the continuation of accommodative policies by saying, "The Fed will continue to provide the support the economy needs." The photo shows Chairman Powell holding a press conference on March 3rd last year when he unexpectedly announced an interest rate cut. [Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Although the Federal Reserve (Fed) once again emphasized its accommodative monetary policy, the market has struggled to find stability. With major economic indicators scheduled for release, attention is focused on whether signs of economic recovery will quell market anxiety. On the 22nd, securities firms projected the KOSPI range for this week to be between 2970 and 3150.

◆Seojung-hoon, Samsung Securities Researcher: "Focus on Style Changes Rather Than Downside Concerns"

The reason why the current stock market response is difficult is judged to be the absence of clear earnings improvement. On the other hand, survey-based macro indicators (e.g., PMI) show unprecedented upward momentum. In particular, improvements in producer prices and new orders, which are closely related to corporate earnings, are notable. The discrepancy here can be attributed to experts’ earnings estimates still being conservative. This is because economic activities are not yet fully open, vaccine uncertainties remain, and the actual scale of deferred demand has not been gauged.

However, from the end of the month when first-quarter earnings become concrete, earnings estimates for individual companies are likely to improve rapidly. Corporate earnings guidance will also be more confident compared to last winter. If so, the combination of recent stock price adjustments and earnings improvements will significantly reduce the valuation burden on the index. However, it should be noted that recovery signals are still selective. Moreover, companies must demonstrate returns that can surpass the elevated interest rates to be persuasive. Although it is difficult to remove the boredom caused by repeated emphasis, the dominance of cyclical stocks centered on intermediate goods exporters is expected to continue. In Korea, this includes semiconductors, automobiles, steel & metals, chemicals, and machinery.

On the 25th, President Biden’s first press conference since taking office is scheduled. It is expected to reveal the blueprint for the much-rumored U.S. infrastructure investment plan. Attention should be maintained on domestic industrial stocks that are recording significant sales in the U.S.

◆Shin Jung-ho, Ebest Investment & Securities Researcher: "Cautious, Not Bearish"

I am viewing the market cautiously. Last year was characterized by the "three lows" (oil price, dollar, interest rates), but this year faces a relatively "three highs" phenomenon. Stock prices are higher than last year. Stocks need to be either cheaper or earnings need to rise quickly. In terms of speed, price changes are faster than earnings changes. However, from the perspective of earnings being guaranteed, a sharp market drop could be an opportunity.

I acknowledge the logic that liquidity inevitably flows into stocks. Until now, the market may have been pushed by liquidity power. However, there was still a basis (prices were attractive, export growth was steep). Although policy authorities differ in their stance on indiscriminate liquidity provision, they are gradually reducing liquidity injections. This is reflected in the Fed’s stance shown in the dot plot, and the SLR extension was not granted for now. Emerging countries with weak links are raising interest rates despite incomplete recovery from the COVID crisis. China is cautious (stabilization of M2 growth rate). In a phase where U.S. growth improves relatively, the dollar is unlikely to easily enter a weak trend.

At that point, Korea’s export growth slowdown will not stimulate foreign buying enough to absorb the thick personal selling pressure. I intend to view the market positively, lowering expectations for liquidity in Q2, enduring the emerging market slowdown sub-cycle amid relative U.S. strength, and considering the price-to-earnings ratio (PER) decline due to earnings growth. I recommend Q2 responses in a market still capped at the upper limit (3300) rather than a trend return above 3300. However, if WTI crude oil plunges (to the low $50s) and then stabilizes, or if the U.S. Treasury yield surpasses 2% (the KOSPI bottom formed when the 10-year U.S. real yield was zero in 2013), or during the period adjustment or price correction until the April FOMC, or a short-term touch of 2800 points (120-day economic line, PER 12x), these are seen as attractive entry points.

◆Han Ji-young & Chae Hyun-gi, Cape Investment & Securities Researchers: "KOSPI Volatility, Refrain from Selling Responses"

This week, the expected weekly KOSPI range is 2950 to 3150. The upward factor is the market’s reduced sensitivity to rising interest rates, while the downward factor is the possibility of further market interest rate increases due to the Fed’s insufficient crisis management.

At the March FOMC, the Fed maintained the dot plot, dismissed the possibility of early tapering, and accepted temporary inflation, leading to a positive market reaction for a time. However, within a day, doubts about the Fed’s capability resurfaced. The bond market still seems unable to fully absorb the burden of government bond issuance caused by the end of SLR regulation relief and large-scale stimulus packages.

The market’s focus remains on rising interest rates, but it is also a time to reconsider the liquidity effect. The U.S. has started cash payments of up to $1,400 per person as part of the $1.9 trillion stimulus package, some of which is likely to flow into the stock market. Domestically, more than 20 trillion won from SK Bioscience subscription payments remains in CMA and other stock market waiting funds, indicating many investors are still eager to enter the market. This is expected to support the stock market’s downside from a supply-demand perspective.

Even in mid-March, the KOSPI has yet to find direction and is only generating volatility. Continuous failure to break previous highs has raised concerns that the domestic stock market may be entering a downtrend. However, the interest rate rise causing current market anxiety is a temporary factor, and the 10-year U.S. Treasury yield at around 1.7% is likely a short-term peak. This suggests that market sensitivity to interest rates will decrease toward the end of the month. Attention should also be paid to the fact that domestic export and earnings outlooks remain on an upward trend. At this point, it is judged necessary to refrain from selling responses.

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