[Good Morning Market] US Stock Market Strength Amid Growing Economic Concerns... Limited Additional Rise in KOSPI

by Kwon Jaehee

Published 28 Apr.2023 08:41(KST)

The New York stock market closed higher despite the disappointing first-quarter gross domestic product (GDP) growth rate announcement. On the 27th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.57% (524.29 points) from the previous close to finish at 33,826.16. The Standard & Poor's (S&P) 500 index increased 1.96% (79.36 points) to 4,135.35, and the Nasdaq index climbed 2.43% (287.89 points) to close at 12,142.24.

Among individual stocks, Meta Platforms surged sharply by 13.93%, buoyed by positive announcements regarding increased advertising revenue and active user growth. In this context, major tech stocks also showed strong gains. Alphabet rose 3.74%, Microsoft (MS) 3.20%, Apple 2.84%, and Amazon 4.61%, all rising on expectations related to the artificial intelligence (AI) industry and improved earnings.

The U.S. stock market's strength centered on major tech stocks despite economic slowdown is expected to have a favorable impact on the Korean stock market as well. Notably, the strength was not limited to major tech stocks but spread across the broader market, indicating positive sentiment spreading to the periphery and improving investor sentiment. However, the earnings of Meta Platforms, which were a cause of the U.S. market's rise, were partially reflected in the Korean market the previous day. The U.S. first-quarter GDP growth rate was announced at 1.1%, and the detailed components were not optimistic, suggesting that the pace of economic slowdown could accelerate, which poses a burden.

[Image source=Reuters Yonhap News]

Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: “Economic slowdown concerns remain... KOSPI expected to rise around 0.5%”

Today, the Korean stock market is expected to start with a rise of around 0.5%. It is anticipated that a process of digesting sell-offs will follow.

Yesterday, the Korean stock market initially fell more than 0.7% due to some individual stock issues and sell-off digestion but reversed to close higher thanks to foreign investors' net purchases totaling 282.6 billion KRW, including 250 billion KRW in Samsung Electronics. Notably, the secondary battery sector surged amid mentions of gigafactories during the meeting between Tesla CEO Elon Musk and President Yoon Suk-yeol, causing the KOSDAQ to rise and showing sensitivity to individual issues. As a result, the KOSPI closed up 0.44%, and the KOSDAQ rose 2.38%.

Meanwhile, the U.S. stock market's strength in major tech stocks despite economic slowdown is expected to positively influence the Korean market. The strength was not limited to major tech stocks but spread across the market, indicating positive sentiment spreading to the periphery and improving investor sentiment. However, the earnings of Meta Platforms, which drove the U.S. market's rise, were partially reflected in the Korean market the previous day.

It is particularly noteworthy that Caterpillar (-0.86%) fell despite solid earnings. This suggests a potential decrease in future demand due to increased dealer inventories. Caterpillar, as a company in the heavy machinery sector, is a bellwether for the global economy, so the increased possibility of demand slowdown could raise concerns about a global economic slowdown. Additionally, the U.S. first-quarter GDP growth rate was announced at 1.1%, and the detailed components were not optimistic, indicating that the pace of economic slowdown could accelerate, which is a burden.

[Image source=EPA Yonhap News]

Jiyoung Han, Researcher at Kiwoom Securities: “Limited upside potential for KOSPI... sectoral differentiation expected”

Yesterday, despite renewed concerns about risks in the U.S. banking sector and the Korean won-dollar exchange rate surpassing 1,340 KRW during the session, the Korean stock market closed higher for the first time in six trading days, supported by solid earnings from large-cap stocks, a rebound in the secondary battery sector, and net foreign buying.

Today, the market is expected to show a positive trend centered on growth stocks, supported by strong earnings from big tech companies. The secondary battery sector, which had deepened its decline after Tesla's weak earnings, rebounded as investor sentiment recovered due to positive factors such as strong earnings from LG Energy Solution, new supply contracts for cathode materials with POSCO Chemical, and the abandonment of the convertible bond purchase rights by EcoPro. Since March, the short-selling ratio of secondary battery stocks has averaged 7-8%, suggesting the possibility of short covering if stock prices rise further.

The KOSPI has risen more than 20% in the first quarter of this year, with a forward price-to-earnings ratio (PER) reaching 13 times, so the upside is expected to be limited in the short term. Seoul Gas, Daesung Holdings, and Seongwang are still recording four consecutive days of hitting the lower price limit, and the credit loan balance on the KOSDAQ has also declined from its peak. Considering that the market has rebounded mainly in sectors with strong earnings such as steel, construction machinery, and defense, despite the distorted supply and demand in stocks hitting the lower limit consecutively, the possibility of widespread forced selling limited to specific stocks is low, and sectoral differentiation focusing on corporate earnings is expected to continue.

In particular, although Samsung Electronics reported first-quarter operating profit of around 640 billion KRW, falling short of 1 trillion KRW, the announcement to expand semiconductor production cuts by up to 25% from the second half of this year has raised expectations for inventory burden relief, which could serve as a catalyst for a short-term market rebound.