[Good Morning Stock Market] China COVID-19 Lockdown vs US Easing Tightening Expectations... Who Wins for Korea?

US Stock Market Slightly Declines on Renewed Focus on COVID-19 Lockdowns
Domestic Market Starts with a Rebound Followed by Impact from Chinese Market

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market closed slightly lower on the 21st (local time) ahead of Black Friday amid a wait-and-see stance, due to concerns over strengthened lockdowns following the spread of COVID-19 in China. The Dow Jones Industrial Average fell 0.13%, the Standard & Poor's (S&P) 500 dropped 0.39%, and the Nasdaq recorded a decline of -1.09% due to a sharp fall in tech stocks such as Apple.

However, Mary Daly, President of the San Francisco Federal Reserve, mentioned that the Fed's benchmark interest rate is between 3.75% and 4%, while market rates are reflecting nearly 6%, which could act as positive news for the market. She pointed out, "When making decisions about further rate adjustments, it is important to remain aware of this gap between the federal funds rate and financial markets," adding, "Ignoring this increases the possibility of over-tightening." Also, Loretta Mester, President of the Cleveland Federal Reserve, stated that recent inflation indicators are encouraging but tightening is necessary until there are signs of further easing, while agreeing on slowing the pace of rate hikes by saying, "It is reasonable to slow the pace of rate increases as we enter a restrictive policy stance."

On the 22nd, the domestic stock market is expected to see a tug-of-war between the positive sentiment from expectations of easing tightening by U.S. Federal Reserve (Fed) officials and the negative impact from the spread of COVID-19 in China.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The U.S. stock market declined as concerns over economic slowdown due to the spread of COVID-19 in China became prominent. In particular, news of Foxconn halting hiring led to noticeable declines in Apple (-2.17%), component stocks, and the semiconductor sector. Tesla also fell sharply due to recalls and a plunge in international oil prices, dragging down the electric vehicle-related stock group and contributing to the Nasdaq's decline.

The emergence of sell-offs centered on tech stocks due to the strong dollar is expected to burden the Korean stock market. Especially, the weakness in electric vehicle-related stocks such as Apple and Tesla amid economic lockdown issues caused by the spread of COVID-19 in China increases the likelihood of underperformance in related stocks in the Korean market, which is also a concern.

However, the fact that the San Francisco Federal Reserve President expressed concerns about the Fed's excessive tightening policy and the possibility of changes among Fed officials is positive. Additionally, the People's Daily mentioning scientific epidemic prevention and easing the possibility of a full-scale COVID-19 lockdown in China is also positive. Considering this, the Korean stock market is expected to start up 0.3%, with changes anticipated depending on movements in the Chinese yuan and Chinese stock market.

◆ Han Ji-young, Researcher at Kiwoom Securities = Since mid-last week, major markets including Korea and the U.S. have been in a phase where the previous upward momentum?such as the decline in the U.S. Consumer Price Index (CPI), the Fed's calls for slowing the pace of tightening, the earnings season, and the fall in exchange rates?has been exhausted. Both the KOSPI and Nasdaq are facing technical resistance levels, and short-term additional positive factors are needed to open the upper range. As indicated by the sharp fluctuations in oil prices yesterday, concerns about a recession are resurfacing, and uncertainty surrounding the Fed's terminal rate level is increasing, meaning that negative factors outweigh positive ones.

Considering this, a primary inference is that the market direction will be downward. However, since the market has become accustomed to existing negative factors just as it has exhausted positive ones, it is judged that at this point, it is more appropriate to assume a box-range movement rather than directional betting.

On this day, technical buying is expected mainly in sectors such as secondary battery cells and materials, and biotech, which experienced excessive declines the previous day. However, the U.S. stock market correction and ongoing concerns from China are expected to limit the overall rebound momentum of the domestic stock market. From a sector perspective, following the APEC meeting and rumors of quarantine due to President Xi Jinping's classification of close contacts with COVID-19 cases, concerns over strengthened lockdown measures in China remain. Therefore, it is necessary to keep open the possibility of increased price volatility in China-related consumer stocks or Apple-related IT value chain stocks today.

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