[Good Morning Stock Market] "Downward Pressure on Corporate Credit Ratings... KOSPI Expected to Start Slightly Lower"

[Asia Economy Reporter Kwon Jaehee] The US stock market opened higher, supported by rebound buying following the previous day's decline and improved corporate earnings, but then turned lower as profit-taking pressure increased, further widening the losses. The recent rise has increased valuation burdens, and strong remarks from Federal Reserve (Fed) officials along with a robust labor market have continuously pushed up US Treasury yields, fueling profit-taking desires. Additionally, warnings from the Congressional Budget Office regarding the debt ceiling negatively affected investor sentiment, leading all three major New York indices to close lower. The Dow Jones Industrial Average fell 0.73%, Nasdaq dropped 1.02%, and the Standard & Poor's (S&P) 500 index declined 0.88%.

Accordingly, the domestic stock market is expected to open with the KOSPI down around 0.2% today.

Kim Seokhwan, Researcher at Mirae Asset Securities: "Pay Close Attention to Corporate Credit Rating Downgrades... Positive Outlook for Media and Content Industries"

[Image source=Reuters Yonhap News]

Recently, the domestic stock market has shown differentiated movements based on individual corporate earnings announcements for the fourth quarter and full year of last year. In particular, large-cap stocks that reported poor results last year are facing increased downward pressure on credit ratings due to deteriorating profitability coinciding with the regular credit evaluation period. As of the 1st, among 40 companies that announced last year's earnings, nearly half?19 companies?reported a decrease in operating profit. For example, LG Display recorded a deficit in the 20 trillion KRW range, prompting all three major domestic credit rating agencies to simultaneously review the impact on its credit rating. SK Hynix also saw Standard & Poor's (S&P), a global credit rating agency, downgrade its rating outlook from 'stable' to 'negative,' citing a significant weakening of credit metrics this year due to decreased demand for memory semiconductors and excess inventory at client companies. Since this is a key factor affecting a company's brand image and long-term profitability, it warrants close attention.

Strong earnings and positive outlooks for consumer experience-related companies in the US stock market yesterday are expected to influence related industries and companies in the domestic market today. Notably, Studio Dragon, which announced earnings after yesterday's market close, achieved its highest-ever operating profit since its founding, and KT recorded sales of 25 trillion KRW for the first time since its listing in 1998, drawing market attention to growth in the media content business segment. The domestic media content industry is expected to continue attracting sustained interest from global investors alongside the growth and maturation of the global OTT industry.

Also worth watching are the first MSCI quarterly review of the year, scheduled to be released during today's trading session, as well as China's January consumer and producer price indices and monetary economic indicators.

Han Jiyoung, Researcher at Kiwoom Securities: "Attentive to China's Consumer and Producer Price Index Announcements"

[Image source=EPA Yonhap News]

Yesterday (Sunday), our stock market opened lower due to the Nasdaq's sharp decline and the burden of consecutive gains but narrowed losses during the session thanks to two consecutive days of net foreign buying, closing with the KOSPI down 0.09% and the KOSDAQ up 0.59%, with the upper limit constrained around the 2500 level. Foreign investors net purchased 149 billion KRW in the KOSPI and 150 billion KRW in the KOSDAQ, with net buying in the KOSDAQ surpassing that of the KOSPI. With no additional upward momentum, the KOSPI's upper limit remains capped around 2500, and rotation trading continues, with the KOSDAQ seemingly aligning with the KOSPI. This is evidenced by concentrated demand in the KOSDAQ's top market cap sectors such as secondary batteries and pharmaceuticals/biotech. It will be worth monitoring whether the upward trend among KOSDAQ's top market cap stocks continues today.

Another point of interest is that international credit rating agency Fitch has raised its 2023 economic growth forecast for China from 4.1% to 5%. Although the real estate market remains sluggish, increased mobility following the end of zero-COVID policies and rising personal savings have led to a surge in pent-up consumption, making a consumption-led economic recovery possible. This upward revision of economic forecasts ahead of China's largest political event, the Two Sessions, scheduled for March 4, has fueled optimism, reflected in the strong performance of cosmetics and travel/leisure sectors yesterday.

Expectations for China's economic recovery are also supported by corporate data. Yesterday, Bank of America lowered its year-over-year revenue growth forecast for Apple's first quarter but noted that despite a slowdown in the smartphone market, sales in China remain robust. They also mentioned increased game sales in China and regulatory approvals for new releases. Additionally, Disney highlighted in its earnings conference call that theme park visitor numbers and occupancy rates are rising, with ongoing profit improvements in the theme park segment, and mentioned future fee increases, cost reductions through layoffs, and content investments, suggesting continued momentum for related stocks. Considering that strong net foreign buying in the domestic market is partly driven by expectations of China's economic recovery, it will be important to see if the January Chinese price indices released today confirm a rise in the Consumer Price Index (CPI) indicating increased consumption and a decline in the Producer Price Index (PPI) indicating inventory adjustments, thereby sustaining optimism.

Additionally, MSCI announced in its quarterly rebalancing review that Kakao Pay will be newly included. Given Kakao Pay's relatively low free float of around 10%, this is expected to have a significant impact on demand due to inflows from index-tracking funds and fund-of-funds following the index.

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