[MarketING] Stock Market Hindered by China Amid Urgency to Move Forward

KOSPI Rebounds After Four Days
KOSDAQ Starts Upward Then Turns Down

The KOSPI initially rose but then turned downward before rebounding again, showing no clear direction in the early trading session. Recently, the market often starts higher but fails to hold gains and turns weak, which is attributed to the prevailing cautious sentiment and profit-taking desires across the market. Additionally, concerns about the Chinese economy and US-China tensions are exerting downward pressure on the stock market.

KOSPI Rises for the First Time in Four Days... Early Session Dips to 2540 Level

As of 10:15 a.m. on the 30th, the KOSPI was up 8.47 points (0.33%) from the previous day, standing at 2558.49. The KOSDAQ fell 1.96 points (0.23%) to 859.83. The KOSPI retreated to the 2540 level in early trading after initially rising but later rebounded successfully. The KOSDAQ also started higher but turned downward and continued to weaken.

[Image source=Yonhap News]

Following a mixed close in the US stock market influenced by solid economic data and tightening concerns, the domestic market is also showing mixed trends amid caution over Chinese economic indicators and US Personal Consumption Expenditures (PCE) inflation data. On the 29th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.80%, the S&P 500 increased 0.45%, while the Nasdaq fell 0.003% compared to the previous day.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Despite a GDP surprise in the first quarter and the easing of recession fears due to major banks passing stress tests, the US market closed mixed as concerns about additional tightening were triggered by a strong economy. Fed Chair Jerome Powell’s consecutive hawkish remarks limited the upward momentum of stock prices."

The final US first-quarter GDP growth rate was recorded at an annualized 2.0%, revised upward by 0.7 percentage points from the preliminary figure of 1.3% announced last month. The US Department of Commerce explained that the upward revision was due to increases in exports, consumer spending, and government expenditures.

Last week, new unemployment claims totaled 239,000, down 26,000 from the previous week. This figure was below Wall Street’s forecast of 265,000 and marked the lowest level in about a month.

However, these positive economic indicators have fueled tightening concerns. Seo Sang-young, a researcher at Mirae Asset Securities, said, "The strong economic growth and employment stability led to a stronger dollar and a sharp rise in Treasury yields. The Chicago Mercantile Exchange (CME) FedWatch tool raised the probability of a rate hike in July from 82% to 87%, increased the chance of an additional hike in September from 16% to 24%, and the possibility of a rate cut in December remains at 10%. Considering this, the market is open to at least one more rate hike and the possibility of prolonged high rates, which caused Treasury yields to surge and led to weakness in tech stocks."

Chairman Powell continued his hawkish remarks, stating, "Most Fed officials expect it to be appropriate to raise rates two or more times by the end of the year," and added, "There is still a long way to go to achieve the 2% inflation target."

With the US May PCE inflation data scheduled for release tonight, cautious sentiment has deepened, and there is speculation that further adjustments could occur depending on the results. One researcher noted, "The May PCE inflation forecast is 3.8% (previous month 4.4%), and core PCE is 4.7% (previous month 4.7%). After the data release, the market may see additional corrections, citing the slow pace of core inflation decline as justification."

Stagnant Market, Slow Impact from China

As the market correction continues, China is also considered a factor behind the sluggish stock market. The economic recovery is slow, and the expected stimulus measures are delayed.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., analyzed, "China’s economy is a downside factor. Poor industrial profits from January to May have led to continued weakness in the manufacturing sector, which is closely linked to Korea, and the ongoing depreciation of the yuan caused the won-dollar exchange rate to rebound, which was unfavorable for foreign investor flows." China’s industrial profits from January to May, announced on the 28th, showed an 18.8% decrease compared to the same period last year.

Another researcher said, "The domestic market has recently shown increased correlation with the Chinese stock market. The dollar-yuan exchange rate surged close to 7.3 yuan during the previous day’s session, marking the highest level since last year when the zero-COVID policy was in place. Consequently, the KOSPI also reversed downward."

China’s June manufacturing and non-manufacturing Purchasing Managers’ Index (PMI) data are scheduled for release during the trading session, and the market is expected to focus on these. Researcher Seo said, "The market expects a slight improvement in manufacturing and a slight decline in non-manufacturing. Particularly, the market is paying attention to the possibility that these indicators could raise expectations for the Chinese government’s active stimulus measures." He added, "Since investor flows will be determined after the data release, the direction of foreign investor demand will likely influence the domestic market’s changes."

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