[Good Morning Stock Market] Big Tech Earnings Awaited... "KOSPI Limited Movement"

Mixed US Stock Market Ahead of Major Tech Earnings
Limited Domestic Market Movement Expected Amid Supply-Demand Pressure on Some Stocks

Last night, the US stock market showed heightened caution ahead of earnings announcements from major tech companies. The late-session rebound buying helped reduce losses, which is positive for the domestic stock market. However, the domestic market is likely to remain cautious ahead of earnings reports from both US big tech and local companies. The semiconductor-related tensions between the US and China, which weighed on the domestic market the previous day, are expected to continue.

Han Ji-young, Kiwoom Securities Analyst: “US Big Tech Earnings Announcements Are Crucial, KOSPI Expected to Show Limited Movement”

Since April, the US stock market has been trading within a limited box range due to uncertainties about the Federal Reserve’s (Fed) end of tightening and recession fears. Nevertheless, the downside of the index remains firm, reflecting ongoing risk appetite within the market. The Bull-Bear spread, a sentiment indicator for individual investors, has reached a neutral level.

For the market to move again, it needs to digest macro issues such as the May Federal Open Market Committee (FOMC) meeting, changes in recession trajectory, and the debt ceiling. In particular, revisions to external outlooks based on key indicators like ISM, employment, and the Consumer Price Index (CPI) are necessary.

Accordingly, market attention is expected to focus on the earnings of big tech stocks such as Microsoft, Alphabet, and Apple. These events are major, and the high volatility that may arise during this period suggests that a wait-and-see approach rather than selling is appropriate.

On this day, the domestic market is predicted to show limited movement as it digests earnings announcements from major domestic companies like Hyundai Motor and OCI amid caution over US big tech earnings. However, the news that First Republic Bank’s first-quarter deposit balance sharply dropped to $104.5 billion, below the market expectation of $145 billion, after market close, is a burden on the domestic market as it has triggered a decline.

Lee Kyung-min, Daishin Securities Analyst: “Stocks with High Margin Loan Balance Ratios and Lending Rates Raise Concerns Over Increased Supply-Demand Volatility”

The biggest topic in the current market is supply-demand issues. Certain stocks saw a sudden surge in sell orders, causing them to hit the lower price limit the previous day.

Considering the elevated margin loan balances since the beginning of the year, leverage pressure is believed to have caused supply-demand volatility. The margin loan balances in the KOSPI and KOSDAQ markets total 20.4 trillion KRW, an increase of 3.9 trillion KRW compared to the start of the year. Looking at KOSDAQ alone, the balance reached 10.5 trillion KRW, comparable to the peak levels seen in April-May last year. The recent 20-day average of new margin loan amounts in KOSDAQ is 1.3 trillion KRW, higher than the levels during the investment boom at the height of the COVID-19 outbreak in 2020.

Analyzing the stocks that hit the lower price limit the previous day, their margin loan balance ratios and lending rates were excessively high compared to the market. The 5-day average margin loan lending rate for all KOSPI stocks is 7.44%, and the margin loan balance ratio is 0.98%. However, KOSPI stocks that hit the lower limit recorded lending rates around 30% and balance ratios of 10%. For KOSDAQ stocks hitting the lower limit, the balance ratio was 10.2% and the lending rate 22.7%. The higher the margin loan lending and balance ratios, the more intensified the forced selling phenomenon becomes when stock prices fall.

Considering the current margin loan trading status by stock size, supply-demand volatility is expected to increase mainly among small-cap KOSPI stocks and mid-cap KOSDAQ stocks. The margin loan balance ratio and lending rate for small-cap KOSPI stocks are 1.7% and 8%, respectively, while mid-cap KOSDAQ stocks record 2.4% and 12%, respectively.

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