[Good Morning Stock Market] "KOSPI Starts Higher... Large Caps Expected to Lead Gains"

Positive BOE Government Bond Purchases
US Stock Market Closes Higher
Dollar Weakens
Discussion on Restarting Shenzhen-Hong Kong Stock Connect Fund
Positive Factors for Domestic Stock Market

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] On the 29th, the KOSPI is expected to start higher. The US stock market showed strength as the British Bank of England (BOE) announced bond purchases and a delay in quantitative tightening, leading to a weaker dollar and a sharp decline in bond yields, which is anticipated to have a positive impact on the Korean stock market.

On the previous day (local time), the US stock market closed higher as the BOE's announcement of long-term bond purchases caused a sharp drop in UK bond yields and stabilization of the pound, easing the rise in US 10-year Treasury yields and dollar strength.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 29,683.74, up 548.75 points (1.88%) from the previous session. The large-cap focused S&P 500 index rose 71.75 points (1.97%) to 3,719.04, and the tech-heavy Nasdaq index closed at 11,051.64, up 222.13 points (2.05%).

Accordingly, the Dow and S&P 500 ended a six-day losing streak, the longest since the early days of the COVID-19 pandemic in February 2020.

Seo Sang-young, Head of Media Content at Mirae Asset Securities: "KOSPI Expected to Start Up Around 1.5%"

[Image source=Yonhap News]

The Korean stock market is expected to start up around 1.5% and show strength centered on large-cap stocks. The US market initially fell due to Apple but expanded gains as the BOE’s bond purchase and other policy responses stabilized the financial market.

In particular, the reversal to a weaker dollar and a sharp drop in bond yields, reflecting a rapid inflow of corrections in the foreign exchange and bond markets, contributed to market stability and stock market strength. Additionally, the improvement in the global investor confidence index, a sentiment indicator for global institutional investors, centered on Asia, is also positive.

The news that the government discussed reactivating the Stock Market Stabilization Fund (증안펀드) yesterday also positively affected investor sentiment. Although its actual impact has been limited in the past, it can help reverse the subdued sentiment.

Furthermore, the sharp decline in the Non-Deliverable Forward (NDF) KRW-USD exchange rate and the resulting won appreciation trend are favorable for foreign investor demand. Of course, the ongoing Eurozone recession concerns remain a burden, but the strong rebound buying sentiment following recent declines is significant.

The MSCI Korea Index ETF rose 0.30%, and the MSCI Emerging Markets Index ETF increased 0.87%. The 1-month NDF KRW-USD rate was 1,421.84 won, reflecting an expected 19 won decline at the open. Eurex KOSPI200 futures rose 1.63%.

Han Ji-young, Researcher at Kiwoom Securities: "Rebound Expected Mainly in Stocks That Experienced Sharp Declines"

On the 29th, although the market will need to absorb early selling from individuals’ margin calls, the easing of the sharp rise in the exchange rate, the BOE’s policy-driven sharp drop in major market interest rates, and other positive factors are expected to lead to a rebound, especially in sectors that experienced steep declines in the previous trading day, such as IT and Apple value chain-related stocks.

The government is reportedly discussing reactivating the Stock Market Stabilization Fund (증안펀드). In the past, during the launches of this fund in May 1990, January 2003, November 2008, and March 2020, the stock market experienced V-shaped rebounds.

The driving force behind those rebounds was not only the stabilization fund but also large-scale fiscal and monetary easing policies by the government and central banks. Currently, due to high inflation issues, it is difficult for the government or central banks to implement stimulus measures, which is a key difference from the past, making a V-shaped rebound from the fund’s reactivation less likely.

However, since new inflows are occurring at historically low levels based on technical and valuation indicators, it is expected at least to support the index’s bottom or cushion declines.

As confirmed by the stock price reaction to Apple’s news of halting iPhone 14 production increases, concerns about consumption slowdown in advanced countries such as the US and Europe due to tightening and inflation are growing, making a rapid fundamental improvement in the stock market difficult to expect.

However, from a financial perspective rather than fundamentals, the market interventions by major central banks such as the BOE and BOJ to curb further panic are positive factors.

Of course, some market participants view the BOE’s decision?entering tightening mode with rate hikes and quantitative tightening?as contradictory and question its effectiveness and sustainability. Nevertheless, it is important to recognize that it helped calm the panic-driven extreme price movements in asset markets, which is commendable.

Although it is too early to conclude, the BOE’s market intervention has raised expectations that the Federal Reserve, which has emphasized data-dependent policy decisions, will adjust policies after reviewing the September CPI results.

Considering this, stock market participants are advised to avoid reducing equity exposure at the current index levels and instead prepare to hold or increase their positions while monitoring data.

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