[Good Morning Stock Market] European Stocks Shift to Individual Stocks as Profit-Taking Desire Increases

Profit-taking sales emerge due to rising fatigue
Similar trends expected in the domestic stock market

[Image source=AP Yonhap News]

[Asia Economy Reporter Minwoo Lee] While the US stock market was closed, European stock markets closed lower amid profit-taking. The decline was led by the automotive sector, signaling a shift to a stock-specific market. It is expected that the desire for profit-taking will increase in the domestic stock market, which has been soaring, due to fatigue from the recent rise.

◆ Sangyoung Seo, Researcher at Kiwoom Securities= On the 26th (local time), the FTSE 100 index of the London Stock Exchange closed at 6362.93, down 0.44% from the previous trading day. Germany's Frankfurt Stock Exchange DAX index closed at 13,286.57, down 0.02% from the previous day. France's CAC40 index fell 0.08% to 5566.79, and the pan-European Euro Stoxx 50 index closed down 0.03% at 3510.94.

In particular, Volkswagen (-2.43%) led the decline following the previous day's downgrade of Ford's investment rating and China's investigation into the electric vehicle sector. Morgan Stanley downgraded Ford, citing a lack of a clear electric vehicle strategy, while China's National Development and Reform Commission (NDRC) announced an investigation into the overall industry's investment efficiency amid a surge in Chinese electric vehicle-related stocks. The NDRC emphasized that it would conduct a field survey of the entire Chinese electric vehicle market for the time being to examine issues such as overinvestment. This increased profit-taking pressure on the automotive industry, leading to a broad decline not only in Volkswagen but also in Daimler (-2.03%) and BMW (-1.88%).

Concerns expressed by the US government regarding the efficacy of AstraZeneca's (-0.67%) COVID-19 vaccine also weighed on the market, weakening the possibility of emergency approval by the US Food and Drug Administration (FDA). On the other hand, stocks with high earnings improvement expectations such as the German Stock Exchange (+1.83%), UK soft drink company Britvic (+1.36%), and ophthalmic lens maker EssilorLuxottica (+1.77%) showed strength. Rebound buying based on liquidity also continued, limiting the decline. Overall, as global stock markets saw increased preference for safe assets and profit-taking emerged, investor sentiment weakened, resulting in a stock-specific market driven by individual issues.

The previous day, the KOSPI fluctuated around the flat line due to the spread of COVID-19 and increased profit-taking desires. However, in the afternoon, foreign investors, who had been slightly selling, began actively net buying mainly in semiconductor and secondary battery sectors, pushing the closing price to a record high of 2625.91. It is also estimated that the Bank of Korea's upward revision of the growth rate and positive outlook on exports through the Monetary Policy Committee contributed to stabilizing investor sentiment.

Recently, the stock market has been largely determined by foreign investors. Therefore, whether foreign investors' net buying will continue is the biggest concern. Recent trends such as a weaker dollar and rising international oil prices tend to stimulate foreign investors' net buying. However, as economic lockdowns due to COVID-19 spread mainly in developed countries, it is uncertain whether this trend will continue.

Considering the decline in European stock markets and US after-hours futures, as well as the nearly 1.7% drop in international oil prices due to fatigue from the rise, profit-taking demand is expected to increase. Additionally, the strengthening of the dollar and yen, reflecting increased preference for safe assets, is also a burden. Taking this into account, the possibility of continued foreign net buying may weaken, and the domestic stock market is expected to undergo a process of absorbing selling pressure.

◆ Okhee Park, Researcher at IBK Investment & Securities= As COVID-19 spreads again in Europe and the US, European economic indicators have weakened ahead, and some US economic indicators have started to weaken. Central banks in developed countries have expanded liquidity supply in response to the resurgence of COVID-19. Economies like China and South Korea, which have relatively better COVID-19 responses, have continued a gradual recovery. However, due to the resurgence of COVID-19 and some economic lockdown measures, major countries' economic indicators are expected to weaken.

Major stock markets in key countries all rose this month. In particular, European and some emerging market stock markets showed strength. Despite the continued spread of COVID-19, the disappearance of the US presidential election event, the effectiveness of COVID-19 vaccines, expectations for additional economic stimulus following Joe Biden's election, and easing US-China tensions acted as positive factors for the stock market. As the stock market rose, the 12-month forward price-to-earnings ratio (PER) of major countries approached the highest level since 2010. The expected earnings per share (EPS) is rising, which is positive. In particular, the earnings revision ratio for the US and South Korea has risen significantly, while Europe's 12-month expected EPS remains stagnant.