[MarketING] Stock Market on Thin Ice Amid Financial Uncertainty

KOSPI Turns Down in One Day
Investor Sentiment Worsens Due to Additional CS-Triggered Financial Anxiety

On the 16th, the KOSPI index opened at 2357.98, down 21.74 points (0.91%) from the previous trading day, as dealers were busy moving in the Hana Bank dealing room in Jung-gu, Seoul. Photo by Dongju Yoon doso7@

As financial instability resurges, the KOSPI turned negative after just one day. The aftershocks of the collapse of the U.S. Silicon Valley Bank (SVB) had not yet subsided when new problems emerged in European banks, further dampening already weakened investor sentiment. It appears that the stock market will need time to regain stability.

KOSPI Falls Back to the 2360 Level Amid CS-Triggered Financial Instability

As of 10:20 a.m. on the 16th, the KOSPI was at 2,367.30, down 12.42 points (0.52%) from the previous day. The KOSDAQ fell 3.94 points (0.50%) to 777.23. Although it initially dropped more than 1% at the start of trading, the decline gradually narrowed.

The return to a bearish trend before fully recovering from the sharp drop on the 14th was due to renewed financial instability triggered by Credit Suisse (CS). Ranked 45th globally in bank assets, CS mentioned in its annual report that significant accounting weaknesses were found. Meanwhile, its largest shareholder, the Saudi National Bank, announced that it could no longer provide financial support to CS due to regulatory constraints, causing the stock price to plunge over 20% the previous day. Subsequently, the Swiss National Bank (SNB) announced it would supply liquidity to CS if necessary, reducing the decline to the 10% range. The U.S. stock market, which had been weak due to CS-related financial instability, saw a narrowing of losses after Swiss financial authorities intervened to stabilize CS, with the Nasdaq turning positive and closing mixed. On the 15th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.87%, the S&P 500 dropped 0.7%, and the Nasdaq rose 0.05%. CS, listed on the U.S. stock market, closed down 13.94%.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Unlike the SVB incident in the U.S., the CS stock plunge in Europe was not directly caused by central bank tightening shocks. However, the emergence of a crisis at CS, a major European bank with greater symbolic significance than SVB, amid lingering aftershocks of the SVB incident, appears to have further heightened market participants' concerns about liquidity instability and systemic risk in the banking sector."

However, the possibility of an extreme scenario is considered low. Seo Sang-young, a researcher at Mirae Asset Securities, noted, "It is important to recognize that after selling shares to the Saudi National Bank in October last year, CS underwent radical restructuring and now has a robust financial structure capable of withstanding large-scale bank runs (massive deposit withdrawals). Although investor sentiment has weakened, the likelihood of an extreme outcome such as bankruptcy is low."

Financial instability is expected to inevitably cause stock market volatility. Han said, "With the SNB deciding to supply liquidity to CS if needed, the CS incident has been somewhat resolved for now. However, as cumulative tightening effects continue to emerge in various places, liquidity concerns in other banks may arise, exposing the stock market to frequent volatility." He added, "Today, the domestic stock market is expected to show limited price movement amid mixed factors such as lingering effects of the SVB incident, additional financial instability triggered by CS, concerns about a banking sector crisis, and expectations for government policy support to respond to the crisis."

Kang Dae-seok, a researcher at Yuanta Securities, said, "Although South Korea is outside the direct impact zone of the SVB incident, foreign investors are showing defensive tendencies, making it likely that recovery from financial risk concerns, including SVB, will be somewhat slow."

Amid Growing Financial Instability, Easing Tightening Concerns

Amid the expansion of CS-triggered financial instability, concerns about tightening that had been constraining the stock market are expected to ease somewhat.

The U.S. Producer Price Index (PPI) for February, released the previous day, fell 0.1% month-on-month, contrary to market expectations of a 0.3% increase. The February PPI also rose 4.6% year-on-year, below January's 5.7% increase. Retail sales in February decreased by 0.4%, contrasting with the previously announced 3.2% month-on-month increase. Researcher Seo analyzed, "The slowdown in the PPI suggests an increased likelihood of a slowdown in the Consumer Price Index (CPI), indicating that price stabilization is accelerating. The retail sales decline aligns with Federal Reserve Chairman Jerome Powell's remarks that the surprise retail sales increase in January was due to mild weather and may lack continuity."

At the upcoming March Federal Open Market Committee (FOMC) meeting, the Fed is expected to adopt a moderate stance. Seo said, "Chairman Powell mentioned at last week's congressional hearing that many important economic indicators would be observed before the FOMC meeting and that monetary policy would proceed accordingly. The contraction in PPI and retail sales following CPI data has increased the likelihood of a moderate FOMC."

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