[Good Morning Stock Market] US Stock Market Gaining Momentum, Will KOSPI Investor Sentiment Recover?

US Stock Market Rose Over 2% Last Friday
Thanks to Interest Rate Hike Adjustment and Weak Dollar
"Short-Term Rebound Possible, but Sustained Uptrend Difficult"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] What moved the U.S. stock market last Friday was the expectation of a slowdown in the pace of interest rate hikes. This was because there was an analysis that the Federal Reserve (Fed) would discuss smaller rate hikes in December after the giant step in November. As the dollar strengthened due to the yen's weakness becoming more frequent, the Dow Jones Industrial Average rose 2.47%, the Nasdaq Composite increased 2.31%, and the S&P 500 climbed 2.37%.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Dollar Weakness, Domestic Stock Market Expected to Rise”

Fed officials are changing. Mary Daly, President of the San Francisco Fed, said, “We will raise rates by another 75 basis points, but we will not raise rates by 75 basis points forever, and it is time to talk about slowing the pace of rate hikes,” which lowered the probability of a 75 basis point hike in December from 75.4% to 50.6%.

The dollar also weakened. This reflected the impact of the Japanese Ministry of Finance intervening in the currency market to lower the dollar-yen exchange rate to 144.5 yen. The British pound also turned strong amid rising expectations for the new government and the possibility of aggressive rate hikes by the Bank of England (BOE), which also contributed to the dollar's weakness.

The expectation of a slowdown in the pace of rate hikes and the weakening of the dollar are positive for the domestic stock market. In particular, the Philadelphia Semiconductor Index, which is closely correlated with the domestic market, rose 3.7%, which is positive. This was thanks to improved investor sentiment following strong earnings reports from Lam Research and ASML. Intel (3.41%), Qualcomm (3.36%), and ON Semiconductor (6.76%) also closed higher. Considering this, the domestic stock market is expected to start with a rise of more than 1%.

Kyoungmin Lee, Researcher at Daishin Securities: “Korean Economy Will Face a Harsh Winter... Clear Limits to Stock Market Rebound”

With a sharp reversal in the U.S. stock market, it seems possible for the KOSPI and global stock markets to attempt further rebounds based on changes in inflation and monetary policy rates. However, the limits of the rebound are also clear. This is because the weakening of fundamental drivers is becoming evident. Economic growth forecasts for major global countries are being revised downward, and China is also suffering from economic instability. The Korean economy and stock market will inevitably face a harsh winter for the time being.

As of October 20, Korean exports showed a 5.5% decrease compared to the previous year, marking a negative reversal after two years. The average daily export amount was down 9%. Semiconductor exports decreased by 12.8% year-on-year, placing them at the center of the slowdown and weakening of export momentum, while steel products (-17.6%), wireless communication devices (-15.6%), and ships (-22.9%) also declined.

Global economic instability and the deterioration of Korea's export economy are being reflected in domestic corporate earnings. As the third-quarter earnings season begins, steep downward revisions of KOSPI earnings forecasts are underway. This year’s operating profit growth rate has reversed to -1.5%, and next year’s operating profit growth rate is only 1.3%, indicating that two consecutive years of earnings contraction are becoming visible.

Energy, chemical, steel, and transportation sectors, which had continued upward revisions amid strong earnings until the second quarter, have also weakened. The possibility of an extended rotation among stocks with excessive declines is high. However, due to faster and steeper-than-expected fundamental deterioration, the magnitude and duration of short-term rebounds are shortening. Risk management is necessary rather than short-term trading.

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