[Good Morning Stock Market] Will 'Bargain Buying' Inflow Despite US Decline... Concerns Over Forced Liquidation

KOSPI PBR Historical Bottom

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] On the 26th (local time), the U.S. stock market closed lower as rising government bond yields in the UK and the U.S. fueled concerns about a recession originating from the UK. The Dow Jones Industrial Average fell 1.11%, the Nasdaq dropped 0.06%, and the Standard & Poor's (S&P) 500 index declined 1.03%. However, considering that the domestic stock market had already reflected the UK recession concerns with an excessive decline the previous day, a rebound buying trend is expected to flow in.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = Although the U.S. stock market declined, the fact that large-cap technology stocks, which had experienced significant drops, rose again today following rebound buying in the late session last Friday is expected to have a positive impact on the Korean stock market. In particular, considering that the KOSPI showed an excessive decline, falling below 2230 points?an average price-to-book ratio (PBR) of 0.89 times during the 2008 financial crisis?a rebound buying trend is expected to flow in. Additionally, despite the strong dollar, the NDF won-dollar exchange rate is falling, indicating won strength, which is also positive. Since downside risks such as continued downward revisions of earnings estimates remain, the rebound may be limited, and a dull box-range movement is anticipated. However, similar to changes in the U.S. stock market, rebound buying is expected to focus on large-cap stocks with solid earnings prospects.

◆ Dongchan Yeom, Researcher at Korea Investment & Securities = The KOSPI has fallen below the 120-month moving average, which has served as a long-term support level since 2004. The lower band of the Bollinger Bands, which acted as a downside support this year, has also been breached. The 12-month trailing PBR has dropped to its lowest level since the financial crisis. Technical indicators and valuation suggest a short-term oversold condition, but the surrounding environment is challenging for responding with buying.

Moreover, the high credit balance ratio poses a supply-demand burden. In particular, the credit balance ratio based on floating shares has not sufficiently decreased despite this year's stock price decline. The market capitalization proportion of companies with a credit loan rate above 5% remains close to the yearly high, raising concerns about an expanded stock index decline due to forced selling. The continuation of the U.S. tightening monetary policy, the strong dollar, and the rising won-dollar exchange rate are also negative factors. The won-dollar exchange rate and the KOSPI show an inverse relationship, with the exchange rate surpassing 1430 won, but further weakening is possible. Global macro uncertainties exist, and the foreign exchange and bond markets are not moving favorably for the stock market, but it is true that the market has entered an oversold phase from a technical and valuation perspective. While it is still early to adopt a strategy of buying stock indices, sectors where the high exchange rate positively affects earnings and those less negatively impacted by won weakness compared to other sectors could be alternatives.

◆ Jiyoung Han, Researcher at Kiwoom Securities = The global ultra-strong dollar and the sharp rise in market interest rates are intensifying downward pressure, especially on sectors with high overseas sales ratios or stocks sensitive to interest rate increases. The discord between the UK government's tax cut plan and the Bank of England's (BOE) tightening policy, as well as political instability caused by the emergence of a pro-Russian new government in Italy, are also negatively affecting financial markets in Korea, the U.S., and other regions.

Ultimately, to resolve the current market instability that frequently triggers panic selling, it is necessary to form expectations of a peak in the Fed's high-intensity tightening, the global king dollar phenomenon, and the spread of strong corporate earnings forecasts that can offset macroeconomic headwinds. Next week, events such as the U.S. ISM manufacturing and employment data or Korean exports could provide a turning point, but since a mood shift is unlikely within a day or two, risk management is required.

Considering that both the Korean and U.S. stock markets have entered oversold territory (below the 30 line) on the RSI relative strength index, the possibility of a technical rebound has increased. Therefore, it is judged appropriate to prioritize holding over selling at this point. Taking this into account, the domestic stock market, which plunged sharply due to panic selling triggered by the previous day's exchange rate shock, is expected to see inflows of bargain hunting and attempt a rebound today. However, since the combined credit balance of the KOSPI and KOSDAQ increased from the yearly low of 17 trillion to 18 trillion won in July and experienced an unprecedented plunge in just one day, it is necessary to prepare for supply-demand volatility such as pre-market simultaneous credit forced selling and stock loan forced selling. Additionally, whether the won-dollar exchange rate, which entered the 1430 won range during the session, will rise further is expected to be influenced by changes in U.S. interest rates and futures market prices.

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