[Good Morning Stock Market] Increased Foreign Demand... KOSPI Expected to See Positive Momentum

Foreigners Net Buy Over 2 Trillion Won on 6 of 7 Trading Days This Month
New York Stock Market Also Sees Uptrend Following Fed's Monetary Easing Policy

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As foreign demand increases, a positive trend is expected for the KOSPI. Along with the structural attractiveness unique to KOSPI, abundant global liquidity and economic stimulus policies are expected to provide stronger fundamental momentum.

◆ With the Fed's easing stance... New York Stock Market on the rise

On the 9th (local time), the New York stock market rose as the Federal Reserve (Fed) reiterated its intention to maintain an accommodative monetary policy.

On that day, Richard Clarida, Vice Chair of the Fed, said in an interview with Bloomberg TV, a U.S. economic media outlet, "The Fed can change its monetary policy only when there is substantial progress in indicators," and added, "Even if inflation rises significantly, the Fed can counter it."

Accordingly, the New York stock market closed higher across the board that day. On the New York Stock Exchange, the Dow Jones Industrial Average rose 0.89% (297.03 points) from the previous trading day to close at 33,800.60. The S&P 500 index closed up 0.77% (31.63 points) at 4,128.80. The tech-heavy Nasdaq index recorded a 0.51% (70.88 points) increase to 13,900.19. Both the Dow and S&P 500 closed at all-time highs.

◆ Lee Kyung-min, Researcher at Daishin Securities = Foreign investors have returned after five months. Since the 26th of last month, foreign investors have net purchased 2.56 trillion KRW over 6 out of 11 trading days, and this month, they have net purchased 2.17 trillion KRW over 6 out of 7 trading days. Along with foreign net buying, the KOSPI led an upward trend and recovered the 3,130 level. The correlation between cumulative foreign net buying and the KOSPI index reached 0.92, indicating that the return of foreign investors can lead to a rise in the KOSPI. In fact, foreign investors are net buying semiconductor, internet, secondary battery-related chemical, and automobile sectors.

The structural attractiveness of the KOSPI underlies the return of foreign investors. Among the top market capitalization stocks in the KOSPI are many manufacturing companies centered on information technology (IT) and renewable energy, as well as internet companies. Expectations for improvements in the global economy and trade, and the fostering of renewable energy industries have changed foreign investors' perspectives. Additionally, global financial market stability and increased pressure for Korean won appreciation are positive factors.

Considering abundant global liquidity, upcoming economic stimulus policies, and last year's base effects, stronger fundamental momentum is expected to flow in. Since KOSPI stocks are still undervalued, Korea's economy and corporate profits can leverage this process.

◆ Gong Dong-rak, Economist at Daishin Securities = The bond market was shocked in the first quarter of this year due to rising U.S. Treasury yields. The 10-year U.S. Treasury yield, which was below 1% at the end of last year, rose sharply in February and last month.

Although market interest rates remain high this month, the market's reaction is different. The 10-year U.S. Treasury yield is around 1.6%, but both value and growth stocks are rising.

There is an interpretation that major changes in key variables so far may not have originated from the rise in yields. While rising yields can trigger position losses in the bond market, fear has not spread to the market.

If the stock market's correction in the first quarter was not closely related to yield trends, the factors cited as causes of the yield rise should be examined. We pointed to a rebound in inflation indicators and inflation expectations, concerns about an early shift in monetary policy, a surge in Treasury supply, and supply-demand burdens as causes. In particular, supply-demand burdens are one of the valid reasons. In fact, the minutes of last month's Federal Open Market Committee (FOMC) identified the rise in term premiums as a cause of the recent yield increase. They noted that additional fiscal expansion and changes in the path of Treasury issuance balances were significantly reflected, highlighting supply-demand factors.

Instead, the reason for the correction is attributed to concerns about growth. In the first quarter, concerns about growth increased due to the resurgence of COVID-19 and the U.S. cold wave, but since last month's FOMC, growth concerns have eased, and the stock market is shifting its focus from inflation to growth.