[MarketING] Profit-Taking Desire Stimulated by Weakness in US Tech Stocks

KOSPI Falls After One Day... Dips Below 2570 Early in Session
Concentration Phenomenon: Technology Stocks Undergoing Selling Pressure Adjustment Process

The KOSPI turned to a downward trend after a day. The weakness of U.S. tech stocks is interpreted as a burden on the stock market. It is expected that the process of absorbing sell-offs will continue amid expanded cautious sentiment ahead of remarks by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed).

KOSPI turns down after a day... falls below 2570 early in the session

As of 10:15 a.m. on the 27th, the KOSPI was at 2,573.83, down 8.37 points (0.32%) from the previous day. The KOSDAQ rose 5.47 points (0.62%) to 874.33.

[Image source=Yonhap News]

The domestic stock market appears to be affected as the U.S. stock market showed weakness centered on tech stocks the previous day. On the 26th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.04%, the S&P 500 dropped 0.45%, and the Nasdaq declined 1.16% compared to the previous day.

Han Ji-young, a researcher at Kiwoom Securities, explained, "The U.S. stock market fell due to a spread of safe-haven preference amid cautious sentiment ahead of Chairman Powell's scheduled remarks during the week, weak German economic indicators, and downgrades of big tech companies' investment ratings."

The U.S. Dallas Federal Reserve Bank's manufacturing activity index for June recorded -23.2, falling short of the expected -21.8. Germany's June IFO Business Climate Index recorded 88.5, below the expected 90.7 and the previous month's 91.5, showing weakness. Seo Sang-young, a researcher at Mirae Asset Securities, analyzed, "Germany's June IFO Business Climate Index recorded its lowest level since last December. Almost all industries contracted, with particularly negative outlooks in manufacturing as well as transportation and logistics industries. This indicates a contraction in the German economy over the coming months, likely expanding the possibility of a recession in the Eurozone." He added, "Although the U.S. Dallas Fed manufacturing index improved from -29.1 announced last month, it still remains negative, indicating continued contraction sentiment. In particular, the production index shrank from -1.3 to -4.2, showing ongoing deterioration in business conditions."

Downgrades of big tech companies' investment ratings by major overseas investment banks (IBs) also contributed to the decline. Goldman Sachs lowered its rating on Tesla from 'Buy' to 'Neutral,' citing concerns over overvaluation following the recent rally and increased competition in the electric vehicle industry. UBS downgraded Alphabet from 'Buy' to 'Neutral,' noting limited upside potential and that the transition to the artificial intelligence (AI) industry could impact short-term costs. Consequently, Tesla fell 6.06%, Alphabet dropped 3.27%, and this ripple effect led to declines in Nvidia (3.74%), AMD (2.27%), Microsoft (1.92%), and Amazon (1.55%), which had previously experienced concentrated buying.

Profit-taking pressure rises amid concentration in tech stocks

Tech stocks, which had risen sharply due to concentration effects, have recently stalled.

Researcher Han said, "AI leaders such as Nvidia, along with Microsoft, Alphabet, and SK Hynix, which are AI-related semiconductor stocks domestically and internationally, rallied since May but have paused since mid-June. This price adjustment seems to stem from the fact that AI stocks were the main drivers of rallies in benchmark indices like the KOSPI and Nasdaq, but only a few of these stocks maintained momentum, causing some market participants to feel burdened."

The domestic stock market is also likely to see profit-taking from recently rising stocks. Researcher Seo said, "The sharp decline of large tech stocks that had driven the market amid concentration in the U.S. stock market is a burden on the domestic market. Especially, there is a high possibility of profit-taking from some stock groups that had led the rise in the Korean stock market."

However, considering the growth potential of tech stocks, the increased volatility is seen as an opportunity to increase holdings. Researcher Han explained, "There has been an accumulation of concentration in stock prices, so in the short term, stocks may be frequently exposed to profit-taking pressure. Nevertheless, since the growth story of these industries remains intact, it is appropriate to view the intermittent price volatility phases as opportunities to increase holdings."

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