The 'Cold Wind' Blowing as Interest Rates Fall

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[Asia Economy Reporter Hwang Junho] As the market interest rates stabilize after a sharp rise and investment sentiment in the stock market picks up, external negative factors have once again swept through the market. In Europe, lockdown measures have been imposed due to the resurgence of COVID-19, and China is pressuring the stock market amid diplomatic clashes with the US and the EU. In the US, tax hike issues have emerged as President Joe Biden's infrastructure policy is reported to reach $3 trillion, exceeding market expectations. Spring is coming, but these are the adverse factors that could bring a cold snap to the stock market.

The Wind is Blowing

On the 27th, IBK Securities pointed to external negative factors as the pressure on the domestic stock market this week, emphasizing that the nature of the market is changing. They stressed the need to recognize that the phase is shifting from valuation expansion to earnings expansion.

Even after the past financial crisis, the market in 2009 saw a significant rebound, followed by a box range market in the first half of 2010. Looking at the market conditions at that time, the base effect and stimulus measures led to an early economic recovery, with steady improvements in domestic exports and earnings forecasts. Additionally, the US-centered low interest rates and accommodative monetary policy environment continued. However, concerns arose that external negative factors such as the European debt crisis and Chinese tightening could delay the economic recovery.

The current market situation can be seen as replacing those external negative factors with the resurgence of COVID-19, diplomatic clashes with China, and US tax hikes. The important point is that despite those external negative factors, the upward trend resumed after the first half of 2010. While considering that the US implemented QE2 at the end of 2010, IBK Securities forecasts that it is necessary to focus on the fact that the overall direction of earnings improvement was not damaged amid external risks.

In particular, if we break down the KOSPI fluctuations after the COVID-19 outbreak into EPS and PER, the earnings momentum has been steadily expanding. From next month onward, the importance of earnings momentum is expected to surpass that of valuation. If the major trend of rising interest rates does not change and large-scale liquidity supply like last year does not resume, the strength and sustainability of EPS upgrades will become crucial for the stock market going forward.

Earnings Momentum is Hard to Stop

Furthermore, recent external negative factors may delay the timing of economic and corporate earnings recovery in the short term, but they are unlikely to damage the recovery path in the second quarter itself. The COVID-19 resurgence shock centered in Europe is not as severe as during the first and second waves, and vaccines continue to be supplied steadily. The diplomatic clashes between China and the US and Europe are only just beginning, and the US tax hike issue has not yet entered a stage that has a real negative impact on the economy and corporate earnings.

Researcher An So-eun of IBK Investment & Securities stated, "Considering these factors, it is judged that the possibility of extending the box range since January is higher than a downward trend reversal in the domestic stock market."

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