[Good Morning Market] US Stocks Falter Due to Coin and Corona... Korean Stocks Should Watch Coupling with Taiwan

Bitcoin Plummets to $42,000 Range... Rising Concerns Over Asia's COVID-19 Resurgence
Growing Influence of Taiwan Stock Market on Domestic Market... Must Monitor After Opening

New York Stock Exchange (NYSE) on Wall Street, New York, USA
Photo by Yonhap News

[Asia Economy Reporter Minwoo Lee] The New York stock market showed a decline centered on technology stocks due to a sharp drop in cryptocurrencies and concerns over the spread of COVID-19 in Asia. Although the domestic stock market has already factored in these downward pressures to some extent, analysts suggest that attention should be paid to the Taiwan stock market, where the influence is growing as COVID-19 cases increase.

On the 17th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed at 34,327.79, down 0.16% from the previous session. The S&P 500 index fell 0.25% to 4,163.29, and the tech-heavy Nasdaq index dropped 0.38% to 13,379.05. Last week, the three major U.S. indices all declined between 1.1% and 2.4%, marking the worst week since February 26. Going forward, stock price volatility is expected due to inflation concerns.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= The U.S. stock market started lower, mainly in technology stocks, influenced by the sharp drop in cryptocurrencies and the expansion of the COVID-19 situation in Asia. Although Federal Reserve officials, including Vice Chair Richard Clarida, claimed that inflationary pressures are temporary and that they would warn the market before implementing tapering (reducing asset purchases), the impact was limited. Ultimately, the U.S. stock market declined as market participants, burdened by various negative factors, avoided active responses, with Bitcoin, Asian COVID-19 developments, and the streaming industry influencing the downturn.

In fact, Bitcoin fell to $42,339 on the day. Before the market opened, U.S. telecom company AT&T announced a merger of its content division WarnerMedia with cable TV channel operator Discovery, causing its stock to drop 2.7%. Discovery's stock also fell more than 5%.

Although the U.S. stock market showed weakness, considering that these downward factors were already reflected in the Korean stock market the previous day, the impact is expected to be limited. Rather, the narrowing of losses in the late session amid expectations of economic recovery in the U.S. and Europe is positive. Attention is focused on how the Taiwan stock market, which opens at 10 a.m. and where new COVID-19 cases surged to 333, will be affected. The domestic stock market is expected to see a rebound buying influx amid the clash between the spread of COVID-19 in Asia and economic recovery in the U.S. and Europe.

◆Jaeseon Lee, Researcher at Hana Financial Investment= Since last week, the U.S. stock market has seen a strong influx of rebound buying, with the Nasdaq index recovering from an extremely oversold area to the level of the long-term moving average. Emerging market stock markets show similar trends, but attention should be paid to the volatility of the Taiwan stock market, which has recently become more coupled with the domestic market. The Taiwan stock market is in a relatively strong correction phase due to overlapping factors such as concerns over corporate production disruptions caused by the spread of COVID-19 and high credit balances.

There has been a notable correction in industrial sectors that had shown an upward trend. This is due to the decline in raw material prices and growing concerns over a global demand peak-out. However, the current decline in raw material prices is believed to be more influenced by supply and demand factors, particularly the drop in raw material prices originating from China. Last week, the Chinese government strengthened its commitment to stabilizing raw material prices. Local governments in major steel-producing cities such as Hebei Province instructed companies to stabilize steel prices, and major Chinese futures exchanges in Shanghai simultaneously raised transaction fees for raw materials used in steel production, such as iron ore.

Concerns over a global demand peak-out can be seen as unfounded. The profitability recovery of industrial sectors remains valid this year. Operating profit margins for steel, shipbuilding, and transportation are expected to reach the highest levels in five years, and gross profit margins are projected to recover to levels seen during the previous inflation momentum period of 2017-18.

However, compared to the overall industry, cyclical sectors including industrials have higher sensitivity to raw material prices and tend to have lower absolute levels of gross profit margins than other sectors. Therefore, in the current phase where raw material price burdens are highlighted, this issue is likely to serve as a pretext for profit-taking among cyclical companies that have experienced significant gains.

Attention should be paid to the possibility of a rotation market mainly focused on consumer-related sectors with relatively low cost burdens. Looking at companies hitting 52-week highs in major developed markets since last week, consumer goods ranked third after financials and industrials. The real economies of major developed countries are moving toward normalization. In the U.S., where vaccine distribution is the fastest, the savings rate (27.6%), a catalyst for deferred demand, has historically increased. Additionally, the population mobility for daily life has mostly recovered to pre-COVID-19 levels, which also boosts consumption momentum.

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