"Global Top 3 Risks" Also Weigh on Earnings... February Stock Market Faces "Second Correction" Nightmare

[Asia Economy Reporter Ji Yeon-jin] As uncertainty in the global financial markets grows, concerns about a secondary correction in the domestic stock market have intensified. The three major risks that triggered a sharp correction from the beginning of the year?inflation, U.S. interest rate hikes, and the Ukraine crisis?are still shaking the market, compounded by a shock in the earnings of domestic companies.

According to the Korea Exchange on the 14th, the KOSPI fell below 2700 within about 30 minutes of the market opening. The index had retreated to the low 2600s during last month's sharp decline but had maintained the 2700 level since the beginning of this month. On the 10th, it even recovered to 2788 during the session, but as Russia's invasion of Ukraine became more apparent, investor sentiment rapidly cooled. The KOSDAQ index also recorded a steep decline of over 2% in early trading.

Initially, the geopolitical risk from Ukraine was expected to have a limited impact on the stock market. When Russia invaded the Crimean Peninsula in March 2014, the European stock market fell by about 3%, but the U.S. stock market dropped by only around 1%.

However, the current Ukraine crisis has intensified the rise in energy and raw material prices, which have recently fueled global inflation, and the confrontation between Russia and Western countries could worsen, making it the biggest wild card for the stock market. According to KB Securities, Russia's share in the energy market is 17% for natural gas and 13% for oil, while in the raw materials market, it accounts for 11% of wheat, 10% of platinum, and 36% of palladium. Kim Il-hyuk, a researcher at KB Securities, said, "If Russia really launches an attack, the U.S. may sanction Russia, and Russia could limit natural gas supplies to threaten Europe. Even if the U.S. is not directly hit, increased uncertainty in the European economy will raise external concerns in the U.S., which is expected to have an impact."

Moreover, these factors could increase the possibility of an economic slowdown in the U.S. The U.S. has already been reducing liquidity by tapering asset purchases by $15 billion per month since November last year. Additionally, real demand is decreasing due to soaring prices, showing signs of slowing consumption. The University of Michigan Consumer Sentiment Index, released on the 11th (local time), plunged 8.2% compared to the previous month. With the Federal Reserve signaling interest rate hikes amid high inflation, the U.S. is facing a double burden of economic uncertainty.

The market expects financial market volatility to expand further this week. On the 16th, U.S. retail sales and industrial production data will be released, and on the 17th, the minutes of the U.S. Federal Open Market Committee (FOMC) meeting will be published, which is expected to confirm the conflicting trends between the economy and monetary policy once again.

In particular, the domestic stock market is also facing the negative factor of poor corporate earnings. According to financial information provider FnGuide, 71.1% of KOSPI-listed companies that announced their fourth-quarter earnings last year fell short of market expectations, and 53.8% recorded earnings shocks. This contrasts with 77% of U.S. S&P 500 companies that reported earnings exceeding expectations. Lee Kyung-min, a researcher at Daishin Securities, said, "Factors that burden corporate earnings, such as poor fourth-quarter results last year, rising raw material prices, global economic uncertainty, and increased pressure from rising interest rates, are exacerbating earnings concerns for the first quarter of this year. With the burden of monetary policy increasing more than before after mid-February, if economic anxiety spreads, it is uncertain whether the KOSPI can maintain support at the 2600 level." He recommended, "It is advisable to secure as much cash as possible and respond defensively in sector allocation, focusing on defensive stocks such as finance and telecommunications."

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