[Good Morning Stock Market] Moody's Downgrade, Slowing China Exports and Imports... "KOSPI Expected to Start Lower"

Possibility of US Interest Rate Cut Next Year Seen as Positive
Producer Price Index and CPI in China to be Released on the 9th

On the 9th, the Korean stock market is expected to start lower. This is due to the decline in the U.S. stock market after international credit rating agency Moody's downgraded the credit ratings of several small and medium-sized U.S. banks and warned that the credit ratings of major banks could also be lowered. Moreover, China's export and import decline was larger than last month. However, the decline narrowed after Patrick Harker, President of the Philadelphia Federal Reserve, mentioned that interest rate cuts would begin sometime next year.

On the previous day (local time), the Dow Jones Industrial Average closed at 35,314.49, down 158.64 points (0.45%) from the previous session. The S&P 500, centered on large-cap stocks, closed at 4,499.38, down 19.06 points (0.42%), and the Nasdaq, focused on tech stocks, ended at 13,884.32, down 110.07 points (0.79%).

One of the reasons behind the index decline was Moody's. The day before, Moody's downgraded the credit ratings of 10 regional banks due to the high interest rate environment and debt management risks, and changed the outlook for six banks to negative. They specifically mentioned risks related to commercial real estate.

Former Japanese Prime Minister Aso Taro's remarks also negatively impacted the market. During his visit to Taiwan, he argued that the Taiwan Strait is important for regional stability and that it is necessary to demonstrate the ability to use defense forces together with the U.S. and others. These remarks by former Prime Minister Aso Taro worsened geopolitical risks surrounding Taiwan. As a result, Chinese companies experienced significant declines, and semiconductor companies with large sales to China saw substantial sell-offs. However, defense industry stocks either limited their losses or rose.

China's July Export and Import Indicators

China's July export and import data also weakened the market. July exports fell 14.5% year-on-year in dollar terms, a larger decline than last month's (-12.4%). Imports also decreased by 12.4% during the same period, expanding from last month's (-6.8%) decline. This fueled concerns about a slowdown in both China and the global economy. Recently, South Korea's export and import statistics also showed significant month-on-month slowdowns, gradually reinforcing this trend.

Unlike in the past, the market reacted sensitively to these negative factors, leading to a decline in the U.S. stock market. This was due to several investment banks showing caution toward the stock market. Credit Suisse mentioned that considering a recession next year, the stock market is becoming increasingly negative. JP Morgan also advised maintaining a reduced exposure to U.S. and Chinese stocks, stating that the market is too optimistic about the economic situation.

Seo Sang-young, Head of Media Content at Mirae Asset Securities, said, "Ultimately, investment banks are gradually reducing their stock allocations, so unlike in the past, the market will continue to react more sensitively to negative factors, and volatility will persist. Especially if the concentration on secondary battery stocks eases, the stock groups that have risen significantly so far are expected to underperform the market returns."

Seo added, "On the 9th, the Korean stock market needs to pay attention to China's Producer Price Index, which reflects corporate sentiment. If the indicator exceeds expectations, it could alleviate concerns about China's economic slowdown and stimulate a rebound buying sentiment." He further noted, "The Korean stock market is expected to start down 0.3% and then fluctuate depending on the Chinese inflation data."

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