[Good Morning Stock Market] US Stocks Fall on Powell's Remarks... Will Korean Stocks See a Contrarian Buying Trend?

Limited Bullish Outlook Due to Counterbuying Inflow
KOSPI Valuation May Gain Attraction

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Amid widespread concerns over the spread of the new COVID-19 variant 'Omicron,' U.S. Federal Reserve (Fed) Chair Jerome Powell hinted at an acceleration of tapering (reduction of asset purchases), causing a sharp decline in the U.S. stock market. As the impact spreads to the domestic stock market, attention is focused on whether a rebound buying trend will emerge.

On the 30th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,483.72, down 1.86% from the previous day. The S&P 500 index closed at 4,567.00, down 1.90% from the previous day. The tech-heavy Nasdaq index also closed at 15,537.69, down 1.55% during the same period.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = As Moderna CEO St?phane Bancel claimed that existing COVID-19 vaccines would be less effective against 'Omicron,' concerns spread, causing sharp declines not only in Asian markets but also in European stock markets. International oil prices also fell significantly, and the U.S. dollar weakened sharply, increasing volatility across financial markets. However, as the number of confirmed cases decreased in South Africa, one of the epicenters of Omicron, concerns somewhat eased, reducing the extent of the stock market decline.

However, the market fluctuated again after Chair Powell suggested at a U.S. congressional hearing that tapering would proceed more quickly. He mentioned that inflation concerns would persist, that the main cause of poor labor force participation was COVID-19, and that recovery would take longer. He also stated that higher inflation risks pose a significant threat to full employment recovery and that the tapering speed must be increased to prevent inflation from becoming entrenched. Following these remarks, the stock market began to widen its losses sharply. The Nasdaq even fell more than 2% intraday at one point.

The domestic stock market is also expected to be affected by these developments. However, the reduction in new cases in South Africa and BioNTech CEO Ugur Sahin's statement that COVID-19 vaccinations will be effective against Omicron helped reduce losses in the U.S. stock market, which is likely to have a positive impact on the Korean stock market as well.

The Fed's hawkish (tightening-favoring) stance and the sharp drop in international oil prices could negatively affect foreign investor flows, but there is also strong rebound buying sentiment following recent declines. Furthermore, it is worth noting that Apple rose despite the weak U.S. stock market due to a surge in iPad sales, and that the U.S. Secretary of Transportation urged the purchase of electric vehicles. These factors could positively influence investor sentiment in related parts industries.

Considering these factors, the domestic stock market is expected to start flat and then continue its strength as rebound buying flows in. Of course, given the slowdown in the U.S. consumer confidence index, the Fed's hawkish moves, and the spread of Omicron in Europe, the likelihood of a significant increase is low. A limited rally with some sector-specific movements is expected.

◆ Jungwon Kim, Researcher at Hyundai Motor Securities = The biggest enemy of the market is uncertainty. The recent market correction is due to the significant increase in uncertainty caused by Omicron. However, if overseas pharmaceutical companies such as Pfizer and Moderna confirm the immunity of existing vaccines against Omicron within a few weeks and concretize plans to develop Omicron-specific booster shots, related uncertainties are expected to ease.

Due to the impact of Omicron, the KOSPI has fallen sharply, and now the valuation attractiveness of the domestic stock market is expected to be highlighted. On the 30th of last month, the KOSPI dropped to 2,839.01 due to the correction caused by the spread of Omicron. Currently, based on earnings per share (EPS), the KOSPI’s 12-month forward price-to-earnings ratio (PER) is estimated at 10.3 times, which is 2.8% below the recent 5-year average of 10.7 times. Meanwhile, the recent 5-year averages for the 12-month forward price-to-book ratio (PBR) and return on equity (ROE) are 0.96 and 9.2%, respectively, with the domestic market’s discount rate estimated at 9.5%. Applying a 12-month forward ROE of 10.1%, the appropriate PBR for the KOSPI is estimated at 1.06 times.

Therefore, the KOSPI’s 12-month forward PBR (1.05 times) is currently 1.02% lower than the appropriate PBR calculated using the discount rate. Ultimately, as uncertainties related to Omicron gradually ease, the valuation attractiveness of the domestic stock market is expected to be highlighted, leading to a potential rebound.

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