[Good Morning Stock Market] Increased Volatility in US Stocks... Will KOSPI's Uptrend Break?

Sharp Rebound of the Dollar, Stabilization Expected in the Second Half
"Buy Strategy for Growth Stocks like Semiconductors and IT Remains Valid"

[Asia Economy Reporter Minji Lee] Despite various uncertainties such as concerns over a shift in monetary policy stance, the domestic stock market has continued its upward trend. However, on the 21st, it is expected to show weakness influenced by the U.S. stock market, which belatedly reflected the hawkish Federal Open Market Committee (FOMC) stance.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= Last week, the U.S. stock market showed a decline of around 1%, influenced by combined concerns over the Federal Reserve's (Fed) hawkish shift, the COVID-19 Delta variant, and the Q2 earnings season. When Micron showed weakness due to the semiconductor industry peak-out issue in Q2, the Philadelphia Semiconductor Index fell by about 2.4%. Additionally, the election of the hardline conservative candidate Raisi as Iran’s president, increasing the likelihood of friction with the U.S., also weighed on the market.

Today, the Korean stock market is expected to open lower influenced by the U.S. stock market. However, since the U.S. market's decline was partly due to supply-demand factors related to futures and options expiration near the close, the drop is expected to be limited. Furthermore, expectations for Fed Chair Powell’s congressional testimony are likely to have a positive effect on the market.

◆Kyungmin Lee, Researcher at Daishin Securities= Since the June FOMC, the global financial market has been turbulent. The key points to watch are the reactions in interest rates and foreign exchange markets. Long-term bond yields have reversed downward, but the dollar continues its sharp rebound. Considering the relative strength of the U.S. Nasdaq, it is difficult to simply attribute the dollar’s rise to a vague safe-haven preference. Rather, it is analyzed that the divergence in monetary policy between Europe and the U.S., amid weakening expected inflation due to monetary policy normalization, has caused the interest rate and foreign exchange markets to move in opposite directions. The stabilization of inflation and interest rates, which had been burdens on global stock markets and the KOSPI, is expected to act as a favorable factor for the market following the aftershocks of the June FOMC.

Although the strong dollar may increase supply-demand pressure from foreign investors, this trend is unlikely to continue. The dollar rebound, reflecting the U.S. moving a step closer to monetary policy normalization, is expected to end without surpassing the previous high of 93 points. There is no change in short-term liquidity or monetary policy, and the European economic variables that stimulated the dollar’s strength in Q1 have shifted. Since mid-May, the U.S. GDP growth forecast for this year has entered a stagnation phase (6.6%), while the UK has seen sharp upward revisions in economic outlook, and the Eurozone GDP growth forecast has been raised from 4.05% to 4.3%.

However, attention should be paid to the COVID-19 situation in the UK, which acts as a psychological variable for the strong dollar. Although the UK’s vaccination rate has reached 80%, new COVID-19 cases have exceeded 10,000 for the first time since February this year due to the spread of the Delta variant. While the previous explosive surge is unlikely to continue, this remains a variable to watch considering the ongoing Euro 2020 season.

If the dollar stabilizes going forward, along with a downward stabilization of interest rates, the upward trend of global stock markets and the KOSPI is expected to strengthen. After a rebound in early May, sectors like automobiles and semiconductors, which had stalled due to increased selling pressure from foreign investors, are expected to resume their upward trend. This is because semiconductor supply disruptions are easing from their worst phase, and operating profit forecasts are being revised upward. If the dollar stabilizes and foreign investor demand improves amid expectations of earnings and industry improvement, the turnaround in the semiconductor and automobile sectors is expected to support the KOSPI’s rise.

◆Jaeman Lee, Researcher at Hana Financial Investment= Currently, the OECD Leading Economic Index has been in an expansion phase, recording three consecutive months of growth. The diffusion index, which leads the OECD Leading Economic Index by about six months, is also maintaining an upward trend. Considering this, it is highly likely that the global economy will maintain its expansion phase and upward momentum at least until November. A favorable environment is expected for the stock price increases of structurally cyclical growth sectors where the proportion of operating profits is rising.

In the domestic market, healthcare and gaming sectors, which are close to structural growth stocks, are expected to see an increase in the proportion of operating profits in the second half of the year compared to the first half. Both sectors also have relatively low market capitalization weights compared to previous peaks. Among cyclical growth stocks, semiconductor and IT hardware sectors currently have low market capitalization weights considering the expected increase in operating profit proportions in the second half, suggesting opportunities for stock price gains.