[MarketING] Stock Market Likely to Move with News Amid Persistent Financial Uncertainty

KOSPI and KOSDAQ Start Higher Then Turn Lower
Persistent Financial Anxiety Fuels Caution

[Image source=Yonhap News]

The KOSPI has declined for two consecutive days. This is interpreted as a renewed expansion of caution amid persistent financial instability. For the time being, the stock market is expected to react sensitively to news related to banks in the US and Europe, showing high volatility.

KOSPI Starts Higher but Turns Lower

As of 10:20 AM on the 27th, the KOSPI was at 2406.08, down 8.88 points (0.37%) from the previous session. The KOSDAQ fell 4.17 points (0.51%) to 819.94. Both the KOSPI and KOSDAQ started higher but then turned lower.

This weakness is attributed to increased caution due to ongoing financial instability. Last week, the sudden rise in Deutsche Bank's credit default swap (CDS) premium raised concerns that bank risks could spread to Deutsche Bank. Ji-Young Han, a researcher at Kiwoom Securities, analyzed, "Amid continued instability in the European banking sector triggered by the Credit Suisse (CS) crisis, the surge in Deutsche Bank's CDS premium, which was at the center of past crisis rumors, appears to be causing fears of bankruptcy among these banks. Recently, after UBS fully wrote off Additional Tier 1 (AT1) capital securities during its acquisition of CS, concerns have arisen that Deutsche Bank's AT1 bonds could also be fully written off if problems occur in the future."

However, Deutsche Bank is relatively financially sound compared to CS, and with positive remarks from Christine Lagarde, President of the European Central Bank (ECB), about the European banking sector, the US stock market, which had fallen due to the Deutsche Bank crisis, narrowed its losses and closed higher. On the 24th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.41%, the S&P 500 increased 0.56%, and the Nasdaq rose 0.31% compared to the previous day.

Han said, "Deutsche Bank recorded a net profit of 5.66 billion euros (approximately 7.93 trillion KRW) last year through restructuring efforts such as a 20% workforce reduction over the past three years and withdrawal from equity sales and trading businesses, which indicates relatively better financial health compared to CS, which posted an $8 billion (approximately 10.4 trillion KRW) loss. Furthermore, Lagarde's remarks that Eurozone banks are resilient and ready to provide liquidity to the financial system if necessary also serve as factors limiting the possibility of crisis contagion among Deutsche Bank and other European banks."

Nevertheless, the ongoing bank risk remains a burden on the stock market. Concerns about small and medium-sized US banks have not been fully resolved since the Silicon Valley Bank (SVB) crisis, and although the acquisition of CS by UBS was expected to ease instability in the European banking sector, renewed worries about Deutsche Bank have emerged, causing concerns about the spread of financial instability and dampening investor sentiment. Sang-Young Seo, a researcher at Mirae Asset Securities, said, "Credit rating agencies including Moody's continue to express concerns about bank risks, and the related issue of economic recession could be reemphasized, which is a burden."

Market Expected to Remain Sensitive to News for the Time Being

Due to unresolved anxieties, the stock market is expected to remain sensitive to news and exhibit high volatility for the time being.

Joon-Ki Jo, a researcher at SK Securities, said, "With the absence of macroeconomic events domestically, the Korean stock market will continue to react sensitively to news related to US and European bank stocks, maintaining high volatility. Most economic indicators that could affect the market will be released after the domestic market closes on Friday, so the overall index will have limited upside and downside, while differentiated movements will appear by sector and individual stocks."

Concerns about commercial real estate have also been raised, so caution is advised. Jo explained, "Currently, global market attention is focused on the banking crisis and identifying where the next problem might arise. Recently, commercial real estate has been mentioned, and even if no issues arise there, the most important factor in the current market is sentiment. Financial conditions such as funding in that sector are likely to worsen, so caution is necessary."

With the banking crisis increasing fears of an economic recession, sensitivity to the economy and corporate earnings is expected to rise gradually. Han said, "The market is likely to remain under the influence of banking crisis-related news this week, but having digested the March US Federal Open Market Committee (FOMC) event that produced more than neutral results, the market is entering a phase of increased sensitivity to economic and corporate earnings fundamentals."

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