[Good Morning Stock Market] KOSPI's Wait-and-See Sentiment 'Will Rebound Buying Flow In?'... Fluctuations Depending on Foreign Demand and Exchange Rate

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[Asia Economy Reporter Lee Seon-ae] On the 15th, the domestic stock market is expected to be influenced positively by the U.S. stock market’s rise the previous day, but it will still be weighed down by concerns over persistently high inflation and intense tightening measures. Although a rebound driven by counterbuying is anticipated, cautious sentiment will likely suppress gains. Fluctuations are expected to be influenced by foreign investor flows and exchange rates.

The New York stock market rose slightly due to counterbuying following a sharp decline the day before. On the 14th (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,135.09, up 30.12 points (0.10%) from the previous session. The Standard & Poor’s (S&P) 500 index rose 13.32 points (0.34%) to 3,946.01, and the tech-heavy Nasdaq index rebounded 86.10 points (0.74%) to close at 11,719.68. All three major indices started higher, but the Dow fell sharply by about 0.7% near the close, maintaining a volatile tone. The S&P 500 and Nasdaq also reversed to declines of about 0.5% and 0.2%, respectively, 30 minutes before the close. However, within 30 minutes, the Nasdaq rebounded about 0.7%, showing significant volatility. Persistent inflationary pressures and the expectation that the Federal Reserve’s (Fed) aggressive tightening will continue for some time caused concern. The previous day saw the three major indices plunge 3% to over 5%, marking the largest drop since June 2020.

Seo Sang-young, Mirae Asset Securities Analyst

The U.S. stock market experienced volatility, rising due to counterbuying after the previous day’s sharp drop but falling again amid ongoing inflationary pressures. During the session, gains expanded on the back of a weaker dollar and stable Treasury yields, but regulatory concerns over major tech stocks led related companies to give back gains or turn negative, causing major indices to surrender their advances. However, counterbuying reemerged near the close, resulting in a positive finish (Dow +0.10%, Nasdaq +0.74%, S&P 500 +0.34%, Russell 2000 +0.38%).

This is expected to have a positive impact on the Korean stock market. Although short-term Treasury yields continued to rise due to still-high inflation, the stability in the foreign exchange market, including a weaker dollar, is likely to help improve investor sentiment.

Additionally, the regulatory issues affecting major tech stocks, which contributed to the U.S. market’s relinquishment of gains, have limited impact on the Korean market, which is also positive. However, the ongoing high inflation issue in the U.S. and the rise in short-term Treasury yields remain burdensome. The possibility that the Fed’s rate hikes could be stronger than expected is likely to dampen counterbuying sentiment. Therefore, the Korean stock market is expected to start with a rise of around 0.3%, but fluctuations are anticipated depending on foreign investor flows and exchange rate changes amid cautious trading rather than active responses.

Han Ji-young, Kiwoom Securities Analyst

Following the Nasdaq’s sharp 5% drop on the 13th, the U.S. stock market has rebounded on oversold perceptions, appearing to try to overcome the shock from the Consumer Price Index (CPI). However, concerns about entrenched high inflation and the Fed’s aggressive tightening remain unresolved. Although the August Producer Price Index (PPI), released on the 14th, showed a headline figure of 8.7%, lower than the previous month (9.8%) and expectations (8.8%), supporting views that U.S. inflation is on a downward trend, the core PPI (7.3%) was lower than the previous month (7.7%) but exceeded expectations (7.1%), indicating persistent inflation concerns even at the producer price level.

When dividing the inflation issue into two stages, market participants appear to have passed the first stage?inflation peak-out?around June CPI (June 9.1% → July 8.5% → August 8.3%), after failures throughout the first half of the year. Successfully passing the peak-out supports the current stock market’s price resilience and reduces the likelihood of retesting the year’s lows recorded in June. The key going forward is the second stage: a meaningful level-down of inflation (entering the 4% range). As seen from the August CPI and PPI results, achieving this will take time (Bloomberg consensus expects entry into the 4% range by Q2 next year). Even if the inflation level-down is not achieved, at least visible signals are needed to expect the Fed to slow the pace of rate hikes.

Considering this, unless unexpected new negative factors arise, it is appropriate to assume a box range market with limited upside until passing the second stage. The domestic market on the previous day showed a sharp drop of over 2% early on due to the CPI-driven U.S. market plunge but closed with reduced losses (KOSPI -1.6%, KOSDAQ -1.7%) thanks to unreflected gains during the holiday period and rising U.S. futures. Today, a rebound is expected following the easing of panic selling in the U.S. market and expanded valuation-driven entry incentives. The rebound is likely to be led by growth stocks that were oversold the previous day. Considering that U.S. electric vehicle stocks such as Tesla (+3.6%) and Nikola (+6.8%) surged sharply on positive remarks related to the Inflation Reduction Act (IRA)?for example, the IRA is expected to triple the market share of U.S.-made electric vehicles?this is expected to have a positive impact on related domestic value chain stocks as well.

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