[MarketING] KOSPI Returns to 2300 Level Amid Negative Factors from the US

KOSPI Falls Below 2400, KOSDAQ Drops Under 800
Volatility Expansion Inevitable Amid Tightening Concerns and Negative Factors

The KOSPI index opened the session at 2,395.45, down 23.64 points (0.98%) from the previous trading day. On the 10th, dealers were busy moving around in the Hana Bank dealing room in Jung-gu, Seoul. The KOSPI fell below the 2,400 mark during the session for the first time in eight trading days since the 27th of last month (2,383.76). Photo by Dongju Yoon doso7@

The KOSPI has been declining for the third consecutive day due to negative factors originating from the United States. In the early trading session, the KOSPI fell sharply below the 2400 level, and the KOSDAQ dropped below the 800 level. With the market adopting a cautious stance ahead of the release of U.S. employment and inflation data, the emergence of additional negative factors suggests that increased volatility is inevitable for the time being.

KOSPI Continues Decline for Third Day

As of 10:15 a.m. on the 10th, the KOSPI was at 2,383.39, down 35.70 points (1.48%) from the previous day. The KOSDAQ fell 18.45 points (2.28%) to 790.77.

This weakness is interpreted as a result of declines in the U.S. stock market. The previous day, the U.S. stock market dropped sharply due to the impact of President Joe Biden’s budget proposal, the push for corporate tax hikes, the liquidation of Silvergate, and the sale of SVB Financial shares. On the 9th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 1.66%, the S&P 500 dropped 1.85%, and the Nasdaq declined 2.05% compared to the previous day.

Ji-hyun Kim, a researcher at Kiwoom Securities, said, "The closure of Silvergate’s operations and concerns over SVB bank’s soundness, along with the Biden administration’s announcement of a corporate tax hike, led the index decline," adding, "The U.S. regional banking system risk and the sharp drop in financial stocks dampened investor sentiment."

Silvergate, a U.S.-based cryptocurrency transaction bank, announced it would liquidate its banking operations. This followed massive losses due to the bankruptcy protection filing of the cryptocurrency exchange FTX in November last year. As a result, its stock price plunged by 40%, and the cryptocurrency market also showed weakness, with risk appetite contraction affecting the stock market.

SVB Financial, a regional bank based in Silicon Valley, announced plans to raise funds by selling $1.75 billion worth of its own shares to improve its soundness. This caused its stock price to plummet by 60%. One researcher explained, "SVB’s main customers are local IT startups, and concerns have spread that the Federal Reserve’s interest rate hikes and bond value declines could expand losses, potentially turning into systemic risks for banks," adding, "Large banks such as JPMorgan Chase (-5.41%), Bank of America (-6.20%), and Wells Fargo (-6.18%) also experienced sharp declines."

President Biden announced a $6.9 trillion budget proposal for 2024, including a corporate tax increase from the current 21% to 28% and the introduction of a billionaire wealth tax. One researcher noted, "Since the Republican Party, which holds the majority in the House of Representatives responsible for budget approval, strongly opposes tax increases, the likelihood of smooth passage is very low at this point. However, since this issue is directly related to corporate profits and the first-quarter corporate earnings turnaround has not yet materialized, it requires close attention."

Sang-young Seo, a researcher at Mirae Asset Securities, analyzed, "The U.S. stock market’s decline in the late session due to political uncertainty following President Biden’s budget announcement is a burden on the Korean stock market," adding, "It is also negative because it could affect the ongoing U.S. debt ceiling negotiations, further dampening investor sentiment."

Increased Volatility Inevitable for the Time Being

With concerns over U.S. monetary tightening expanding and a cautious stance prevailing to verify economic indicators, the continuation of negative factors in the market suggests that increased volatility is unavoidable for the time being.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as the "Wall Street fear index," surged 18% the previous day. The domestic fear index, the KOSPI 200 Volatility Index (VKOSPI), also rose more than 8% that day, marking the largest increase this year.

Young-hwan Kim, a researcher at NH Investment & Securities, said, "Considering the importance of imminent economic indicators and the differing opinions among market participants on the Federal Reserve’s potential interest rate hike and economic outlook, there is room for increased stock market volatility," adding, "Major U.S. economic indicators are scheduled to be released consecutively, and since these indicators are likely to determine the extent of rate hikes, the market will interpret good data negatively (Good is Bad) and bad data positively (Bad is Good)." The U.S. February employment report is scheduled for release on this day, followed by the February Consumer Price Index (CPI) on the 14th, February Producer Price Index (PPI) and retail sales on the 15th, and February industrial production on the 17th.

Yoo-jun Choi, a researcher at Shinhan Investment Corp., forecasted, "From the 10th to the 17th, the effects of intensified tightening and adjustments in expectations for China will be major variables, with downside factors likely to have greater influence than upside ones," adding, "The February U.S. employment report and consumer price data will be dominant; if the indicators continue to show strength, a 50 basis point (1 bp = 0.01 percentage point) rate hike in March will become a foregone conclusion."

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