[Good Morning Market] Clear Recovery in Global Stock Markets... Will the Rally Continue?

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] The KOSPI successfully reclaimed the 2000-point level for the first time in two and a half months. Global stock markets also approached pre-COVID-19 highs. On the 26th (local time), the three major U.S. stock indices all rose. The S&P (Standard & Poor's) 500 index, which is weighted toward large-cap stocks, closed at 2991.77, up 36.32 points (1.23%) from the previous trading day. The Dow Jones Industrial Average also rose 529.95 points (2.17%) to 24,995.11, and the Nasdaq index closed at 9,340.22, up 15.63 points (0.17%) from the previous day.

Although concerns remain over the resurgence of COVID-19 and U.S.-China trade tensions, global stock markets appear to be more optimistic about the effects of economic reopening. Markets worldwide, including South Korea, are expected to continue their rally from sectors led by online and bio industries to more cyclical industries such as aviation, travel, steel, and chemicals.

◆ Jo Ikjae, Researcher at Hi Investment & Securities: This is a phase where doubts about a short-term market peak arise. Historically, after shocks, stock prices tend to recover 60-70% of their losses before experiencing a first correction or sideways movement. New negative factors such as China’s omission of a growth target at the National People's Congress and the U.S.-China dispute triggered by the Hong Kong security law also raise concerns about a short-term peak. However, since the market holds expectations for a global economic recovery following the lifting of activity restrictions, no correction is expected until this is confirmed. After reviewing recent economic indicators from the U.S., China, and Europe, it appears that the bottoming out of key economic indicators began in May. In particular, U.S. consumption is expected to rebound sharply in sectors such as dining out and gas station sales following the lifting of activity restrictions. In conclusion, the rally, which has so far been led by industries benefiting from COVID-19-driven growth?namely, the untact (contactless) online and bio sectors?is expected to continue for some time in more cyclical industries.

◆ Seo Sangyoung, Researcher at Kiwoom Securities: On the previous day (26th), the domestic stock market showed strength amid expectations for a global economic reopening. In particular, the announcement of China’s large-scale stimulus policy to promote demand for new energy vehicles such as electric cars led to a sharp rise in secondary battery-related stocks, driving the market upward. Despite intensified U.S.-China frictions and concerns expressed by the Federal Reserve about a delayed economic recovery, it is estimated that positive sentiment about economic recovery had a more significant impact on the market than negative factors. The continued rise in U.S. stock markets could be favorable for the Korean market. However, considering that factors such as economic reopening and China’s stimulus policies were already priced in the previous day, a process of digesting selling pressure is inevitable. Although the U.S. market rose, it is noteworthy that technology and bio sectors showed weakness, and profit-taking sales emerged in the afternoon, partially giving back gains. This was because untact-related stocks, which had led the rise thanks to massive liquidity injections from the Federal Reserve and other central banks, tended to widen their losses in the afternoon. Ultimately, U.S. market participants showed buying interest across cyclical sectors such as steel, chemicals, shipbuilding, and automobiles in the short term, but technology and bio stocks that had led the rise were subject to profit-taking. The Korean stock market is also expected to exhibit similar trends.