[Good Morning Market] US Stock Market Rebound Buying and China’s COVID-19 Easing Measures... KOSPI Expected to Start Higher

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] On the 9th, the Korean stock market is expected to start higher. This is likely influenced by the S&P 500 index breaking its longest losing streak since last October and closing higher the previous day. In particular, expectations of increased consumption amid China's easing of COVID-19 policies are also positive for the Korean stock market.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,781.48, up 183.56 points (0.55%) from the previous session. The large-cap focused S&P 500 index rose 29.59 points (0.75%) to 3,963.51, and the tech-heavy Nasdaq index closed at 11,082, up 123.45 points (1.13%).

Sang-young Seo, Head of Mirae Asset Securities Division: "KOSPI expected to start higher... Semiconductor stocks positive"

On the 9th, the Korean stock market is expected to start with an increase of around 0.7%. The strong performance of the U.S. stock market the previous day, driven by rebound buying, is expected to have a favorable effect. In particular, the Philadelphia Semiconductor Index rose 2.67% amid expectations of easing tensions between the U.S. and China, which is expected to result in solid performance centered on related stocks.

Additionally, there is a tendency for program buying aimed at dividends to flow in more actively after expiration dates, which is also positive. After recent declines, the possibility of a rebound is high. Considering that such program buying generally flows into large-cap stocks, this is a factor that could expand the index's gains.

[Image source=AP Yonhap News]

It is necessary to pay attention to the continuous announcements of China's easing of COVID-19 prevention measures. In particular, the measures announced on the 7th mentioned reducing the frequency of PCE testing, self-quarantine announcements, and limited and short lockdowns. Notably, President Xi Jinping and state-run media have continuously emphasized that COVID-19 is not dangerous.

This is significant in that supply chain instability caused by lockdowns is unlikely to expand. Also, if China proceeds with a "with COVID" approach, the possibility of increased consumption through face-to-face contact may rise. According to a report by McKinsey, 58% of Chinese households have increased their savings, the highest rate since 2014. The report also mentioned that China's savings deposits increased by 14 trillion yuan (2 trillion dollars) up to September this year.

Therefore, if China moves toward "with COVID," the possibility of "revenge consumption" is high. In this case, consumption of premium goods is likely to increase, spreading expectations of increased sales for companies in China. Amid growing concerns about economic recession due to reduced U.S. consumer spending power caused by recent interest rate hikes, China's consumption increase is a factor that can alleviate this.

Meanwhile, the number of weekly new unemployment claims in the U.S. recorded 230,000, exceeding the previous week's 226,000 and the forecast of 228,000. The 4-week average increased from 229,000 to 230,000. Continued claims rose from 1,609,000 to 1,671,000, indicating a gradual contraction in the U.S. labor market.

U.S. Treasury yields rose due to a rebound following recent declines. Although employment concerns surfaced with the increase in new unemployment claims, the impact was limited, and this rebound is believed to have influenced the rise. The indication that high interest rates may need to be maintained longer also contributed to the increase. Notably, ahead of the Producer Price Index (PPI) announcement tomorrow, the rise in short-term yields was limited.

Ji-young Han, Kiwoom Securities Researcher: "Domestic market rebound expected supported by strong U.S. big tech stocks"

The domestic stock market is expected to rebound on the 9th, supported by the strong performance of U.S. big tech stocks such as the Philadelphia Semiconductor Index (+2.7%), Apple (+1.2%), and Amazon (+2.1%), as well as technical buying following short-term adjustments during the week. The won-dollar exchange rate is also expected to be favorable for foreign short-term supply and demand, so large-cap stocks are anticipated to show a favorable price trend. During the day, it will be worth watching whether caution surrounding the U.S. PPI (scheduled to be announced tonight), which is released before the U.S. CPI, will flow into the domestic stock market depending on China's November PPI (expected -1.4% YoY) results.

Although the U.S. stock market succeeded in rebounding the previous day, since December, major countries' stock markets including Korea and the U.S. have shown weakened overall upward momentum and no clear direction. Major benchmark indices such as KOSPI (200-week moving average), S&P 500 (200-week moving average), and Nasdaq (20-week moving average) have failed to break through medium- to long-term resistance levels, which is triggering technical selling pressure. For new momentum in fundamentals or breakthroughs of resistance levels on charts to occur, new catalysts are needed. It is expected that such catalysts will be secured through the upcoming November CPI and December FOMC events next week.

For now, the market consensus for the November U.S. CPI has gradually declined over time to 7.3% (YoY, down from 7.7% in October). This is believed to be driven by limited rebounds in energy prices such as oil during November and weakened real demand. The market tends to react more to how actual data differs from expectations rather than the data itself, so if the CPI slowdown fails to meet excessive expectations, it will be negative for the stock market.

Also, the increase in consumption and import demand from China's accelerated full reopening can buffer the global economic slowdown but simultaneously poses a dilemma for market participants as it may cause a rise in global inflation. However, the market is reflecting this in stock prices while increasing caution. Therefore, it is necessary to assume as a base that the CPI-triggered stock shock will not occur but rather result in a neutral stock price trend. Accordingly, it is considered appropriate to avoid excessive position reductions (or directional bets) until next week.

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