[Good Morning Stock Market] US-China Conflict is a 'Tempest in a Teapot'... Should We Invest in Reopening and Semiconductors?

[Asia Economy Reporter Ji Yeon-jin] On the 8th (local time), the U.S. stock market rose as solid corporate earnings were confirmed despite the rise in government bond yields. Expectations for a COVID-19 reopening boosted cyclical stocks and travel-related shares. Additionally, geopolitical risk from the Ukraine situation eased after Russian President Vladimir Putin mentioned in a summit with French President Emmanuel Macron that tensions would not escalate, further stimulating investor sentiment. On that day, the Dow Jones Industrial Average rose 1.06%, the S&P 500 increased 0.85%, and the Nasdaq index climbed 1.28%.

◆ Han Ji-young, Kiwoom Securities Researcher = Currently, the U.S. 10-year Treasury yield is around 1.96%, reaching its highest level since the end of 2019, showing no signs of easing. While rising yields can signal economic growth, at this point, the acceleration concerns related to the U.S. Federal Reserve (Fed) appear to have a greater impact. After the consumer price index announcement on the 10th (expected 7.3%), the possibility of yields entering the 2% range should be considered. Since the 2% level has been perceived as a psychological resistance, if yields reach the 2% range during the week or month, the stock market may experience a minor tightening-induced shock. However, since much of the negative impact from the Fed has already been reflected in January, the intensity of future tightening is expected to be limited.

Today, the domestic stock market is expected to show an upward trend, despite concerns over rising yields and lingering distortions in LG Energy Solution's supply and demand. This is supported by the strong performance of the U.S. stock market and expectations for the recovery of domestic companies' earnings power. The strength of reopening-related stocks and semiconductor shares in the U.S. market is also expected to contribute to improved investor sentiment for related stocks in the domestic market. However, one of the factors that caused the market to give up gains and turn downward after midday trading yesterday?the U.S.-China conflict?is likely to persist today. Considering that, unlike during the Trump administration, the U.S. has not blacklisted Chinese companies but placed them on a lower-level Unverified List, the U.S.-China conflict should be regarded as noise.

◆ Ryu Jin-yi, Hi Investment & Securities Researcher = The U.S. Department of Commerce added 33 Chinese institutions to its export control list yesterday. These were added to the Unverified List (UVL), which includes companies whose end users are unclear. When registered on this list, U.S. companies must obtain government approval to export goods to these institutions (which can include not only companies but also schools and other entities). Among the newly added 33 institutions, Wuxi Biologics is China's largest contract biopharmaceutical manufacturer and relies heavily on exports to North America for a significant portion of its sales. Wuxi Biologics' stock price plunged more than 20% intraday before trading was halted. The CSI 300 index fell as much as 2.4% intraday amid renewed U.S.-China tensions.

However, the Biden administration judges that the likelihood of imposing retaliatory tariffs as in the past is low. With inflation recently becoming the biggest issue in U.S. politics and the Democratic Party facing the November midterm elections, it is difficult to choose to impose tariffs on China that would increase import price pressures. According to a CBS News survey conducted in January, among those who responded that the U.S. economy is not doing well, 80% cited inflation and 53% pointed to President Biden's policies as the problem. Although anti-China sentiment is strong in the U.S. due to issues related to Hong Kong and ethnic minorities, it is difficult to respond by imposing tariffs.

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