[Good Morning Stock Market] Growing US-China Tensions with Expanding WeChat and Tencent Sanctions... Impact on Domestic Stock Market?

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] As the United States has placed the popular Chinese app WeChat on the sanctions list, the Trump administration's pressure on China is intensifying. Although the Chinese government is strongly protesting, it appears to be focusing on a temporary pause considering the upcoming high-level economic talks with the U.S. scheduled for the 15th. Many expect that the Trump administration's pressure on Chinese IT companies will continue until the U.S. presidential election in November. Domestic stock market experts anticipate increased volatility in the local stock market due to the expansion of U.S. sanctions against China.

◆ Seo Sangyoung, Kiwoom Securities Researcher = Last Friday, the U.S. stock market closed mixed despite a favorable employment report, affected by friction with China and uncertainty over additional stimulus measures. In particular, in the afternoon, there was selling pressure on untact and large tech stocks, while banks and cyclical stocks turned strong.

The domestic stock market is expected to experience increased volatility due to intensified friction with the Democrats over Trump's executive order on additional stimulus measures, which may delay implementation, as well as the expansion of U.S. sanctions against China.

Notably, last week’s U.S. stock market saw profit-taking on Friday, leading to corrections in large tech and untact-related stocks. This profit-taking selling pressure was observed not only in the stock market but across the financial markets. In the domestic stock market, the key factor to watch is whether this trend will expand. The Korean stock market is expected to see profit-taking selling pressure due to U.S.-China friction.

◆ Jo Yeonju, NH Investment & Securities Researcher = In a situation where President Trump's position has weakened due to lame-duck status, extending stimulus measures through executive orders appears to be an effort to solidify his political standing. President Trump is expected to respond sensitively to economic indicators and financial conditions until the November election.

◆ Park Soyeon, Korea Investment & Securities Researcher = Currently, all investors are focused on whether the KOSPI, which is achieving a top 1% historical performance, will continue to perform well. The difference from the 1999 venture boom is that the real economy remains sluggish. From this perspective, the KOSPI resembles 2002 more closely. At that time, the Korean stock market struggled with a severe bear market following the IT bubble burst but experienced a sharp rebound after a 50bp rate cut immediately following the 9/11 attacks. However, it turned bearish again starting May of the following year when the Bank of Korea raised rates. When stock prices rise without a real increase in EPS due to declining risk appetite, they become very sensitive to interest rate changes, increasing the possibility of sharp fluctuations caused by overheating.

Excessive pessimism should be avoided, but it is necessary to closely monitor inflation concerns and volatility in monetary policy and interest rates for the time being. In fact, last weekend, as U.S. employment data improved and interest rates rose, profit-taking on growth stocks intensified. In the short term, the Jackson Hole meeting at the end of August and the Bank of Korea’s Monetary Policy Committee meeting on the 27th appear to be important.