Amid Soaring Price Burdens, "Time to Separate the Wheat from the Chaff"

(Photo by Bloomberg)

[Asia Economy Reporter Junho Hwang] With the U.S. Consumer Price Index (CPI) in May reaching its highest point in 41 years, discussions about "transitory inflation" or "inflation peak-out" have both lost momentum. There are forecasts that "the stock market will continue to experience volatile movements."

Seojeonghoon, a researcher at Samsung Securities, stated in his weekly market outlook, "The 10-year U.S. Treasury yield, which has settled around the 3% level, indicates that the high inflation period is not yet over. The 2-year yield, sensitive to policy rate expectations, has also surpassed the 2.8% level, pricing in the possibility of four big steps (50bp hikes)," forecasting accordingly.

This is the aftermath of rising prices. The May Consumer Price Index (CPI) showed an 8.6% increase compared to the same period last year. This is the fastest inflation rate in 41 years since December 1981. The May CPI increase also surpassed the 8.5% rise recorded in March. Market expectations were around 8.3%.

The primary cause of inflation is oil prices. Due to geopolitical risks, China's reopening, and other upward factors for oil prices, even a strong dollar cannot curb high oil prices. Not only energy prices such as gasoline but also all chemical-based manufactured goods prices are linked to crude oil prices, making it difficult for core inflation indicators, excluding energy, to decline under current oil price conditions.

Researcher Seo said, "The combination of high oil prices, high interest rates, and a strong dollar causes high costs in both the real economy and finance, which is unfavorable for the domestic stock market." He added, "While fears of tightening have caused valuation multiples to shrink, the soaring dollar and oil prices may trigger cost concerns for domestic companies, potentially leading to downward revisions in earnings forecasts." This means that inflation could negatively impact the real economy. However, he noted as a positive aspect that, due to nearly a year of market correction, price and value burdens are not significant. Foreign selling pressure is low, and China is attempting a turnaround with reopening after its downturn.

Researcher Seo stated, "Given this situation, the upside for indices like the KOSPI is likely to be limited, but at the sector and stock level, positive factors can be sufficiently reflected." He continued, "In stock selection, price merit should be the top priority," and "even if short-term declines are excessive, caution should be exercised with growth stocks that have high valuation levels."

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