[Good Morning Stock Market] European Stocks and US Futures Rise Amid Oversold Perception... Will Foreign Investors Return?

[Asia Economy Reporter Kwon Jaehee] Following the previous day's KOSPI index hitting a new low due to a selling spree by foreign investors, a slight rise is expected at the start of trading on the 21st. The European stock markets closed higher as key policymakers, including U.S. Treasury Secretary Janet Yellen, expressed confidence in the economy, which is anticipated to have a positive impact on our stock market as well. The U.S. stock market was closed on the 20th in observance of Juneteenth. Notably, the Biden administration's push for gasoline tax exemption is also favorable as it could accelerate the pace of easing high inflation in the future. This is expected to positively influence foreign investor flows, unlike the previous day. European markets closed higher across the board, with Germany up 1.06%, the UK 1.50%, France 0.64%, and the Euro Stoxx 50 0.91%.

◆Sangyoung Seo, Head of Media Content at Mirae Asset Securities: "KOSPI Expected to Start Up Around 0.7%"

The Korean stock market started higher the previous day, supported by a robust U.S. market and Treasury Secretary Yellen's confidence in inflation easing and the economy. However, volatility in the cryptocurrency market soon triggered sell-offs, leading to a sharp decline. Particularly, negative news from Intel caused tech stocks to fall, and a strong selling wave by foreign investors centered on large-cap stocks continued, resulting in the disappearance of bargain hunting, with supply-demand factors cited as the main cause of the decline. Consequently, the drop was more pronounced compared to other countries, with the KOSPI closing down 2.04% and the KOSDAQ down 3.62%.

In this context, the European markets' positive close and the Biden administration's gasoline tax exemption efforts are expected to have a favorable impact on foreign investor flows, differing from the previous day. Additionally, the forward 12-month price-to-earnings ratio (Fwd PER) of the KOSPI stands at 8 times, significantly below the 10-year average of 9.6, indicating undervaluation relative to corporate value. Despite increased input costs due to inflation, price hikes have been minimized, and sales growth continues due to demand recovery, which could boost contrarian buying sentiment. Considering this, after the previous day's decline caused by supply-demand gaps, the Korean stock market is expected to show a solid performance with an approximate 0.7% rise.

◆Jiyoung Han, Researcher at Kiwoom Securities: "Attention Needed on Companies Announcing Treasury Stock Buybacks"

On the previous trading day, the KOSPI fell sharply below the 2400 level due to concerns over North Korea's nuclear tests, renewed semiconductor order cut rumors, worries about a long-term downtrend in stock prices, and a sharp drop in the cryptocurrency market. Since there was no clear cause for the previous day's plunge in our market, a rebound is expected today, supported by an overreaction to the decline and gains in European markets and U.S. futures. The technical indicator, the weekly relative strength index (RSI) of the KOSPI, is currently below the 30 line, indicating an oversold condition, and it is even lower than during the March 2020 COVID-19 pandemic and January 2022 quantitative tightening episodes, reinforcing the perception of an excessive drop. However, due to the recent sharp decline, the volume of margin calls from individual investors is increasing, so caution is needed regarding supply-demand noise caused by margin call sell-offs during the pre-market call auction and immediately after market opening.

Additionally, the recent increase in announcements of treasury stock buybacks by domestic listed companies is noteworthy. Although improvements in earnings per share (EPS) and return on equity (ROE) occur only after the acquired shares are canceled, reducing the number of outstanding shares and net assets, simple buybacks alone have limitations. However, considering that overall market and individual stock trading volumes have decreased, treasury stock buybacks by companies have a greater liquidity effect than before. Therefore, it is advisable to pay attention to companies that announce intraday treasury stock buybacks at the individual stock level.

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