[Good Morning Stock Market] US Delta Shock Subsides, Earnings Season Returns... Will Domestic Market Rebound?

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market, which had been shaken by the shock of the COVID-19 Delta variant, rebounded in just one day. On the 20th (local time), the three major U.S. stock indices closed higher due to a rebound buying spree following the previous day's excessive decline. The Dow Jones Industrial Average rose 1.62%, while the Nasdaq and S&P 500 increased by 1.57% and 1.52%, respectively. Analysts say that the rise reflects expectations of corporate earnings improvement rather than concerns over the resurgence of COVID-19. The domestic stock market is also expected to start higher as the COVID shock eases, with a possibility of strength centered on stocks showing notable earnings improvements.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. stock market rose despite the continued spread of the COVID Delta variant, as fear sentiment showed signs of easing. Notably, the market's focus shifted from COVID to earnings. Apple showed a strong 2.60% gain amid growing expectations for earnings improvement, and IBM also led the index rise with increased cloud sales driving earnings, boosting large tech stocks. Financials, industrials, travel, and leisure sectors, which had deepened their losses the previous day, showed strength due to expectations that there would be no large-scale lockdowns despite the spread of COVID.

The MSCI Korea Index ETF rose about 0.50%, and the MSCI Emerging Markets Index ETF increased by 0.32%. The KOSPI is expected to start up around 0.5%. It is particularly important to note that the U.S. stock market has shifted from COVID issues to the earnings season. Although the COVID issue has not been completely resolved, making it difficult to sustain the rise, there is a higher likelihood of strength centered on stocks with high short-term earnings improvement expectations. Considering this, the Korean stock market is expected to fluctuate depending on foreign demand for large tech stocks.

◆ Sanghyun Park, Researcher at Hi Investment & Securities = While government bond yields are plunging sharply, the price of Bitcoin, a representative risk asset, fell below $30,000 again on the 20th. A contrasting trend between safe assets and risk assets is becoming visible. This reflects inflation risk along with economic risks caused by the Delta variant. Some even raise the possibility of stagflation risk, where rapid inflation and economic recession occur simultaneously.

However, it is difficult to generalize the recent drop in Bitcoin prices below the important support level of $30,000 as a risk asset price adjustment due to a full-scale economic slowdown. The recent Bitcoin price decline is attributed to China's strong cryptocurrency regulations and increased uncertainty in the crypto market following mentions of the introduction of digital currencies (digital dollar) by the People's Bank of China and the U.S. Federal Reserve (Fed). The economic cycle is a temporary slowdown caused by weakening policy effects, inflationary pressures, and unexpected variant virus spread, and a supercycle supported by investments related to innovative technologies and economic normalization is expected to support the economic expansion cycle. Although some voices suggest that the sharp drop in U.S. Treasury yields preemptively reflects a double-dip risk in the U.S. and global economy, the probability of a double-dip is considered extremely low.

◆ Yujun Choi, Researcher at Shinhan Investment Corp. = The National Pension Service (NPS), a major player in the domestic stock market, announced plans to reform its benchmark. The purpose is to resolve discrepancies in the domestic stock benchmark and improve operational procedures. The specific timing for applying the new benchmark has not been disclosed. The domestic stock management within the fund is divided into direct management and entrusted management. There are two types of benchmarks, and the reform plan will expand the universe. Direct management will be restructured from the existing KOSPI 200 to NPS-KR250 (tentative name), which adds 50 stocks within KOSPI. Entrusted management will change from the existing KOSPI and KOSDAQ 100 to KOSPI + KOSDAQ 150.

As of the end of April, the domestic stock amount within the fund was 178 trillion KRW. Of this, direct management accounts for 52%, and entrusted management 48%. The proportion of entrusted management is gradually increasing. Since the beginning of the year, KOSPI has risen 12.5%, increasing the domestic stock proportion within the fund. Although pension funds reduced their KOSPI holdings, they made net purchases in KOSDAQ. The government announced plans to diversify pension funds' domestic stock investment range earlier this year. An increase in the portfolio's KOSDAQ and small-to-mid-cap stock proportions was expected. With the largest institution in terms of management scale undertaking benchmark reform, an expansion of the investment universe to mid-cap stocks, which were not included in the existing benchmark, is anticipated.

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