[Good Morning Stock Market] Early Year KOSPI Uncertainty Expands... Caution on Corporate Earnings and Interest Rate Hikes

Corporate Earnings and Interest Rate Uncertainty Make Early-Year Effect Difficult
Demand Recovery Expected Mainly in January Among China Reopening Beneficiaries

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Last year, the KOSPI closed lower, and it is expected that the sluggish trend will continue for the time being. This is because concerns about economic downturn and uncertainties over the Federal Reserve's (Fed) interest rate hikes are expected to confirm the stock market bottom in the first quarter. On the first trading day of this year, the market opens at 10 a.m. The closing time remains the same at 3:30 p.m.

Namjung Moon, Researcher at Daishin Securities: “Stock Market Cold Spell Will Continue”

Although we have welcomed the new year of Gyemyo (Year of the Rabbit), the stock market cold spell that appeared at the end of last year is expected to persist. Since the Santa rally did not occur at the end of last year, there may be heightened expectations for a Santa rally at the beginning of the year, but uncertainties about the economy and earnings caused by the Fed's monetary policy uncertainty are expected to strengthen risk-averse sentiment.

When listing the risk factors for this year's stock market, inflation entrenchment, worsening situation in Ukraine, slowdown in the Chinese economy, emerging market crises, and resurgence of COVID-19 all share a common denominator: the realization of a global economic recession. The key issue is whether the U.S. will enter a recession and, if so, the intensity and duration of that recession. The Fed has projected this year's economic growth rate at 0.5%, below the potential growth rate (1.8%), excluding the possibility of a soft landing.

The first quarter is a phase where the stock market passes its bottom, caught in confusion due to financial condition turmoil and growth slowdown. It is expected that during the first half of the year, as the Fed seeks to shift monetary policy and the effects of economic slowdown unfold, market interest rates and prices will gradually decline, providing incentives to reduce stock market uncertainties from the second quarter onward.

A short-term indicator to watch carefully is the U.S. December employment report to be released on the 6th. At the end of last year, the stock market interpreted weak economic indicators as a sign of easing Fed monetary tightening, which contributed to stock market gains. The forecast for December nonfarm payrolls (260,000) is expected to fall short of the previous month's figure (263,000). Based on the Fed's recognition that easing labor market overheating is necessary to stabilize inflation, the stock market is expected to interpret labor market weakening as a signal for the Fed to slow its monetary policy pace, making a short-term technical rebound possible.

Jungho Shin, Researcher at Ebest Securities: “January Effect Expected Due to China’s Reopening”

[Image source=Yonhap News]

In January, stock prices tend to record positive performance due to optimistic outlooks for the future economy. However, considering the market conditions continuing since last year, concerns currently have a stronger influence in the market.

The factor to expect the January effect in the domestic stock market next year can be found in China. Since China announced a phased plan for "With-COVID" last month, expectations have been reflected in sectors such as cosmetics, duty-free, and leisure. On the 28th of last month, the Chinese government resumed issuing foreign game licenses to domestic game companies after a year and six months, leading to a rebound in the game software sector.

The economic improvement effect from China's With-COVID policy is likely to begin with the recovery of domestic consumption due to the lifting of regional lockdowns in China. Subsequently, depending on the recovery of production indicators, supply chain disruptions may be resolved, and the business conditions of manufacturing complexes are expected to improve. It is predicted that there will be an initial demand recovery for games, whose foreign licenses have resumed, and advanced medical devices with high market share within China.

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