[Good Morning Stock Market] Despite US Growth Rate Falling Short of Expectations... 3 Major Indexes Rebound

US GDP Growth Rate↓ Due to Production Disruptions from Bottlenecks
Chinese Platform Regulations May Lead to Foreign Investor Supply Issues in Domestic Stock Market

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Byungseon Gong] Although the US GDP growth rate for the second quarter of this year was weaker than expected, the three major indices of the New York stock market rose. The growth rate was sluggish due to production disruptions caused by bottlenecks, but the securities industry interprets that US government policies are still having a positive impact.

The New York stock market rose collectively on the 29th (local time). On that day at the New York Stock Exchange, the Dow Jones Industrial Average closed at 35,084.53, up 0.44% (153.60 points) from the previous trading day. The S&P 500 index closed at 4,419.15, up 0.42% (18.51 points) from the previous session. The tech-heavy Nasdaq closed at 14,778.26, up 0.11% (15.68 points) from the previous trading day.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The US GDP growth rate for the second quarter recorded 6.5%, significantly below the market expectations of 8.0% to 9.1%. The quarterly growth rate, not annualized, was 1.6%, showing four consecutive quarters of growth but raising concerns about a slowdown in the pace of improvement.

This sluggishness is largely attributed to a slowdown in government spending following the end of the Paycheck Protection Program, a decline in residential investment due to a slowdown in purchases caused by soaring housing prices, and inventory reductions. The deterioration in purchasing power due to rising prices and a faster-than-expected decline in the savings rate have also raised concerns about a slowdown in growth rate acceleration in the second half of the year. The US household savings rate, which was 33.6% in April last year, has now fallen to 12.4%.

However, personal consumption expenditures continue to increase, and real GDP is 0.8 percentage points higher than the pre-pandemic level of the fourth quarter of 2019. This proves that government policies are still effective. Spending increases due to vaccination and infrastructure investment remain favorable factors that help sustain economic recovery. In fact, US Treasury Secretary Janet Yellen interpreted the recent figures positively, stating that they showed a solid performance based on vaccine effects and government policies. Additionally, if consumption slows due to the COVID-19 Delta variant, growth may decelerate, but expectations for Federal Reserve (Fed) and government policies could rise, which would also help improve overall investment sentiment.

(Provided by NH Investment & Securities)

◆ Gitae Ahn, Researcher at NH Investment & Securities = The main reason for the downward revision of the US growth rate in the second quarter is production disruptions caused by bottlenecks. US factories and construction sites are struggling to find goods and labor, causing delays.

Automobile production stagnated, leading to a decrease in sales prices since May. Although automobile consumer spending reached an all-time high, new car sales in June were below pre-COVID-19 levels. Since April, housing starts have been delayed, causing a slowdown in home sales. Retailers’ inventory ratio is 1.09 times, which is more than 20% lower than the recent 10-year average of 1.41 times.

On average, the transportation time index, which reflects difficulties in parts procurement, eased after eight months of worsening bottlenecks. The transportation time index exceeded 60% in October last year and slightly declined in June this year. Although the level of the transportation time index remains the highest since the oil shock, it is estimated that the peak has passed. It is expected that the labor shortage issue will improve after September, when unemployment benefits end.

(Provided by SK Securities)

◆ Daehun Han, Researcher at SK Securities = The July Federal Open Market Committee (FOMC) passed smoothly, deciding to establish a standing repo facility to serve as a safety net for US Treasury investors, but China is causing noise. The Chinese government is wielding regulatory measures against platform companies. Following Alibaba last year, regulatory and policy actions were taken against platform companies such as Tencent and Didi Chuxing, causing a sharp decline in the Chinese stock market.

Considering these measures are aimed at expanding government influence, it is highly likely that Chinese government regulations will increase in the future. The impact of Chinese government actions on the domestic stock market is actually limited. However, the concerning part is foreign capital flows. As anxiety about the Chinese market grows, the yuan is weakening, which could lead to depreciation of emerging market currencies and capital outflows from emerging market investors.

The situation where funds are further withdrawn due to Chinese regulatory news is burdensome and requires continuous monitoring. Fortunately, no significant signs of capital outflows have been detected yet from passive funds tracking emerging markets or Asian emerging markets. In other words, while caution is needed as Chinese regulatory issues could negatively affect foreign capital flows, so far the investment sentiment decline appears to be limited to China-specific issues rather than a broader impact.