[Good Morning Stock Market] "US-China Conflict, Concerns Over China Regulatory Risks... Limited Impact on Domestic Stock Market"

[Asia Economy Reporter Park Jihwan] On the 27th, the domestic stock market is expected to largely recover from the previous day’s decline in the KOSPI, which fell amid escalating US-China tensions and China’s intensified sanctions on its domestic tech companies. The previous day, the KOSPI dropped nearly 1% to the 3220 level due to simultaneous selling by foreigners and institutions affected by US-China conflicts and Chinese government regulations on tech companies. Although it started the session with gains, it turned downward as selling pressure increased due to weakened investor sentiment among foreigners and institutions.

Experts expect that the overnight rise in the US New York stock market, driven by anticipation of major companies’ earnings announcements, will positively influence the investment sentiment of foreigners and institutions in the domestic market as well.

On the 26th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,144.31, up 82.76 points (0.24%) from the previous session. The tech-heavy Nasdaq index closed at 14,840.71, up 3.72 points (0.03%). The Standard & Poor’s (S&P) 500 index rose 10.51 points (0.24%) to 4,422.30. All three major indices recorded all-time highs that day. Although the market initially showed a temporary decline due to worsening investor sentiment from the drop in the Chinese stock market, it reversed to gains on positive earnings outlooks from companies.

◆ Seo Sangyoung, Researcher at Mirae Asset Securities = On this day, the KOSPI is expected to start with about a 0.5% gain, with fluctuations anticipated depending on changes following major companies’ earnings announcements.

The Korean stock market rose the previous day, buoyed by strength in the US market. However, it turned downward and the decline widened due to the ripple effects of the sharp drop in the Chinese stock market. The Chinese market showed increased volatility, falling nearly 3% intraday amid government regulatory tightening, poor earnings, and news of clashes in high-level US-China talks. This led to foreign investors expanding their net selling in both spot and futures markets, further dampening investor sentiment due to supply-demand factors.

However, attention should be paid to the fact that the US market showed a cautious stance ahead of major companies’ earnings announcements. Ultimately, concerns over US-China conflicts, which were one of the causes of the sharp drop in the Chinese market, did not have a significant impact, suggesting a rebound in the Korean market from the previous day’s decline. Although Chinese companies listed on the US market experienced large declines, these were due to individual company factors, so the impact on the Korean market is expected to be limited.

◆ Han Jiyoung, Researcher at Kiwoom Securities = The Korean stock market is expected to rebound, supported by the US market’s strength driven by earnings season optimism.

Most of the shock from the sharp drop in the Greater China markets on the previous trading day stemmed from China’s unique industry risks such as regulations on education and music industries rather than US-China conflicts, so the likelihood of continuous shock transmission to the domestic market is considered low. The overall market trend on this day is expected to be differentiated by individual sectors and companies’ earnings amid cautious sentiment ahead of macro events such as the July Federal Open Market Committee (FOMC) meeting.

After the US market closed on the previous trading day, news that Tesla achieved an earnings surprise despite the vehicle semiconductor supply shortage is expected to improve investment sentiment for electric vehicle value chain stocks in the domestic market. With earnings announcements scheduled for leading stocks in representative sectors such as Hyundai Motor, Samsung SDI, and Samsung Biologics, attention should be paid to their actual earnings and intraday stock price movements.