KOSPI Gains Momentum "Foreigners and Institutions Buying"... Market Focuses on Tax Increase and Infrastructure Investment

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[Asia Economy Reporter Lee Seon-ae] The KOSPI, which started higher, has continued to extend its gains into the afternoon, maintaining its upward momentum. This is interpreted as being supported by simultaneous buying from institutions and foreigners. The market is focusing on the Biden administration's second fiscal stimulus package, which will be announced on the 31st (local time).

On the 30th, the KOSPI opened at 3,038.44, up 0.08%. The KOSDAQ started at 954.54, up 0.05%. Currently, the KOSPI is up 0.95% at 3,065.00, and the KOSDAQ is up 0.33% at 957.22.

Foreigners and institutions are leading the market with joint buying. Foreigners are net buyers of 146.3 billion KRW in the KOSPI market and 16.6 billion KRW in the KOSDAQ market. Institutions are net buyers of 371.8 billion KRW in the KOSPI market and 13.5 billion KRW in the KOSDAQ market. Only individuals are net sellers in both markets, selling 531.3 billion KRW in the KOSPI market and 7.7 billion KRW in the KOSDAQ market.

The market's attention is now focused on the Biden administration's infrastructure investment policy. This stimulus package, in which the Biden administration plans to invest more than $3 trillion (approximately 3,390 trillion KRW) in infrastructure, is divided into △‘physical’ infrastructure investments such as civil engineering and eco-friendly projects △social infrastructure investments such as education and healthcare. However, tax increases to secure funding will also be implemented. U.S. Treasury Secretary Janet Yellen stated that this infrastructure plan will be accompanied by tax hikes. As a result, the calculation of the market impact has become complex due to the interplay between tax increases and economic improvement effects.

David Lefkowitz, head of U.S. equities at UBS Financial Services, told MarketWatch, "An increase in the corporate tax rate could moderately pull down the U.S. stock market, but American companies will still be able to achieve healthy net profit growth." He also predicted, "Because the tax increase is at least partially for infrastructure-related spending, it will boost economic growth and partially offset the stock market decline caused by the tax hike."

Researcher Ha In-hwan of KB Securities emphasized that if the funding method is 'tax increases (such as corporate tax),' the stock market cannot help but become tense again. There is also a view that expectations for the $3 trillion should be lowered.

It took two months for the $1.9 trillion stimulus package to pass. The two-month delay was due to Republican opposition to the expansion of the fiscal deficit caused by the additional large-scale stimulus package. Therefore, Ha advised that if it took two months for the $1.9 trillion stimulus package to pass, it is necessary to recognize that it will likely take even longer for the $3 trillion infrastructure investment policy to be approved.

He said, "President Biden is expected to announce policies focused on investment," adding, "While the three areas worth noting from an investment perspective (traditional infrastructure, eco-friendly, 5G) should be viewed positively, doubts about the possibility of congressional approval may arise, so expectations should be lowered rather than being overly optimistic about the $3 trillion figure."

Since the Republican Party is highly likely to strongly oppose funding through tax increases, conflicts between the Republican and Democratic parties over the funding method are expected. Researcher Ha emphasized, "The conflict will have the effect of delaying the timing when the tax increase issue impacts the stock market," adding, "The risk of a stock market correction due to the tax increase issue is expected to be not at the policy announcement next week but rather when the details of the tax increase method become clearer (likely 1 to 3 months later)."

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