[Good Morning Stock Market] Shrinking Risk Asset Sentiment... KOSPI at Risk Below 2900 Level

Despite Last Week's Nasdaq Rebound Close
Concerns Rise Over KOSPI Decline Amid Weak Retail, Industrial, and Sentiment Indicators

Global Economic Outlook Adjustment Phase, Growing Gap with Monetary Policy
KOSPI and Emerging Asian Markets Expected to Underperform Developed Countries
Decoupling from Developed Markets Observed Due to Fundamental Concerns in Second Half of Last Year

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] As investment sentiment toward risky assets weakens, the KOSPI's upward momentum is expected to remain limited on the 17th. Although the Federal Reserve's (Fed) tightening clock is accelerating, concerns about a recession have grown following last week's U.S. economic indicators that fell short of expectations. Securities experts advise adopting a conservative approach during the global market correction phase, as the fundamentals of the domestic market are weaker compared to advanced countries.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Concerns over slowing U.S. and China economic growth... Investment sentiment weakens”

[Image source=Yonhap News]

Last Friday's disappointing U.S. economic data triggered a sharp rise in Treasury yields, fueling a decline in the stock market. U.S. retail sales in December fell 1.9% month-over-month, with non-store sales, representing online sales, dropping by 8.7%. Industrial production also declined by 0.1% month-over-month, affected by a roughly 1.3% plunge in automobile production. The University of Michigan consumer sentiment index was also negative for the stock market, largely due to an upward revision of the one-year expected inflation rate from 4.8% to 4.9% among key components.

However, the Nasdaq index showed a slight rebound in the late session, closing up 0.59%. This reflected expectations for the upcoming earnings season despite the sharp rise in Treasury yields and weak economic data. According to market research firm FactSet, fourth-quarter operating profits for the S&P 500 are estimated to increase by 21% compared to last year.

Although the U.S. Nasdaq index rebounded, the sharp rise in Treasury yields and sustained dollar strength are expected to weigh on the domestic stock market. In particular, Fed officials reaffirming the rate hike stance amid high inflation is predicted to negatively impact investor sentiment. Additionally, weak retail sales and industrial production data increase the possibility of a slowdown in South Korea's exports.

Moreover, ongoing lockdowns due to the spread of COVID-19 in China add to the burden. The possibility of slowing economic growth in China is rising alongside the U.S. growth slowdown issue. Considering this, the domestic market is expected to start slightly lower, with overall investment sentiment weakened, but buying pressure continuing mainly on some large-cap stocks with high expectations for earnings improvement, resulting in differentiated movements by stock.

Kyoungmin Lee, Researcher at Daishin Securities: “Discrepancy between global economy and monetary policy... KOSPI volatility will increase further”

Since the beginning of the year, global financial markets have been reacting sensitively to U.S. Fed monetary policy issues. Meanwhile, what investors should watch more closely is the global economic trend. The market can stabilize and seek a trend reversal only when the gap between the economy and monetary policy narrows, but the reality is moving in the opposite direction. Attention should be paid to the possibility of an expanding gap between the economy and monetary policy.

Since the start of the year, U.S. economic indicators have shown a weak trend. The U.S. ISM manufacturing index fell short of expectations, and following the shock in new employment numbers, retail sales, industrial production, and the University of Michigan consumer confidence index all missed forecasts last weekend. The signs of economic slowdown compared to the previous month are becoming more evident.

From the perspective of adjusting economic expectations, investment sentiment may weaken further. If the global financial market, which had been stable, shakes, increased volatility in the KOSPI is inevitable. It may even show a weaker trend compared to advanced countries due to its fundamental inferiority. The short-term Macro Risk Index, which indicates market sensitivity to risk, is rebounding from historical lows and recovering to 0.5.

In particular, the KOSPI may face increased supply-demand pressure in January and February. Program trading and short selling are intensifying, and selling pressure may increase due to changes in domestic and foreign investment environments. The IPO of LG Energy Solution is also expected to act as a supply-demand black hole.

Some argue that since the KOSPI has already undergone a preemptive correction, it could show a resilient trend. While it may eventually outperform advanced markets, it is not yet the case. For the time being, attention should be paid to the relatively weaker fundamentals and supply-demand variables of the KOSPI. For example, in August and September last year, the KOSPI declined to the 3050 level despite the U.S. index continuing its record-high streak, due to concerns over the semiconductor industry and earnings. After September, as the U.S. market entered a short-term correction phase, the KOSPI fell further to the 2900 level. The domestic market, with its weak fundamentals, has repeatedly failed to keep pace with the strength of the U.S. and advanced markets and experienced larger declines during corrections.

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