[Good Morning Stock Market] Heightened Caution on Economic Recovery and Rebound

[Asia Economy Reporter Junho Hwang] Last week, foreign investors withdrew from the stock market, causing the KOSPI to derail from the 3200 level. On the 16th, the Korean stock market was closed for the substitute holiday of Liberation Day, while on the same day, the U.S. Consumer Sentiment Index and China's real economy indicators fell short of expectations. Amid growing concerns over economic recovery due to the spread of the COVID-19 Delta variant, the Japanese stock market experienced increased volatility, falling more than 2% intraday. Investors awaiting the market on the 17th after the holiday are facing deep concerns.

S&P 500 Doubles in One Year

[Image source=Yonhap News]

The previous day, the New York stock market showed mixed sectoral movements amid various positive and negative factors. The Dow Jones Industrial Average rose 110.02 points (0.31%) to close at 35,625.40, the S&P 500 increased by 11.71 points (0.26%) to 4,479.71, while the Nasdaq fell 29.14 points (0.20%) to finish at 14,793.76.

U.S. economic broadcaster CNBC reported that the S&P 500 index exactly doubled from its lowest point of 2,237.40 on March 23 last year, marking the fastest doubling since World War II. CNBC noted that it usually takes about 1,000 trading days for the index to double, but this time it took only 354 trading days.

Although the index closed higher, various factors caused fluctuations throughout the day. News that China's July industrial production increased by 6.4% year-on-year and retail sales by 8.5%, both significantly below expectations, dampened investor sentiment at the market open. The news of the Islamic militant group Taliban's takeover of Kabul, the capital of Afghanistan, also triggered market anxiety. However, in the afternoon, positive factors emerged in sectors including pharmaceuticals and biotechnology, leading to a turnaround to gains.

Gong Dong-rak, a researcher at Daishin Securities, analyzed, "China's economic indicators showed levels below expectations, making the slowdown in economic recovery more visible. The July indicators, marking the start of the second half of the year, clearly showed a slowdown, continuing concerns about economic recovery after COVID-19."

Continued Foreign Investor Withdrawal Expected

Concerns about economic recovery are expected to affect the Korean stock market as well. Seo Sang-young, a researcher at Mirae Asset Securities, said, "The U.S. stock market started lower due to weak economic indicators early in the session, which is a negative factor for the domestic market," and predicted, "It will impact foreign investor flows."

Investor sentiment in Korea's KOSPI dropped to 30% on the 13th. Typically, a 25% level is considered a recession, prompting buying recommendations. The weakening sentiment is evident in foreign investors' withdrawal. On the 13th, the KOSPI fell to the 3100 level for the first time in 54 trading days (since May 28). Foreign investors net sold a record 7.0262 trillion KRW from the stock market over the past week.

He added, "Gold prices are rising, while market interest rates and international oil prices are falling, increasing preference for safe assets. Considering this, the domestic stock market is expected to start down about 0.5%, followed by a rebound buying wave."

Han Ji-young, a researcher at Kiwoom Securities, said, "The Korean stock market is expected to rebound mainly in large-cap stocks, as the over 1% sharp drop last Friday was seen as excessive. The easing of the sharp decline in major semiconductor stocks like Micron in the U.S. market is also expected to contribute to the recent rebound in domestic semiconductor sector stocks, whose sentiment had rapidly deteriorated." However, she noted, "With growing concerns over delayed global economic recovery and upcoming major U.S. economic data releases such as retail sales and industrial production after the domestic market closes, caution is expected to limit the index's upside."

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