[Good Morning Stock Market] "Powell Reassures Market, Domestic Stock Market Expected to Rise"

Powell: "Tapering Within This Year,
Rate Hike Is a Distant Story"

US Stocks Rise Broadly
Nasdaq Up 1.23%, S&P 500 Up 0.8%

Domestic Market Also Expected to Rise
China Risk and COVID-19 Spread Are 'Concerns'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] As Federal Reserve (Fed) Chair Jerome Powell mentioned that a dovish monetary policy stance will be maintained for a considerable period, risk asset preference sentiment is rapidly recovering. The designation of the tapering start time within this year, reducing uncertainty, also had a positive impact. Accordingly, the domestic stock market is expected to show an upward trend on the 30th. However, the spread of COVID-19, risks from China, and concerns about the semiconductor industry remain, which are expected to dampen the upside potential.

Sanghyun Park, Researcher at Hi Investment & Securities: “Recovery of risk asset preference sentiment... Differentiation from the U.S. stock market will be resolved”

Despite Fed Chair Powell formalizing the start of tapering within this year, the market focused more on the resolution of uncertainty. Until now, tapering uncertainty acted as a source of anxiety whenever economic indicators improved, causing considerable fatigue in the financial market. Fixing the tapering start time within this year is analyzed as having resolved this uncertainty.

The market also reacted to the possibility that the tapering start time could be delayed to the November FOMC meeting. Initially, market participants expected that a specific timing related to tapering would be announced at the September FOMC meeting. Considering Powell’s remarks that tapering plans would be announced taking into account employment and COVID-19 situations, a delay beyond expectations is possible.

It was also positive that concerns about tightening monetary policy, such as early rate hikes, were dismissed. Powell said, “Rate hikes are very far away,” alleviating concerns about early rate increases. Regarding inflation risk, he maintained the existing stance that price rises are temporary, sending a clear message to the market that a dovish monetary policy stance will be maintained for a considerable period.

At this Jackson Hole meeting, preference for safe assets weakened while recovery in risk asset preference became clear. Oil prices also rebounded. Due to the slowdown in U.S. economic indicator improvements, China risks, and the strength of the dollar, international oil prices (WTI), which had fallen to around $62 per barrel, rose again to $68.74, approaching the $70 mark.

The domestic stock market is also expected to escape the differentiation phenomenon from the U.S. stock market. However, the unresolved China risk remains a burden. The easing of regulatory risks related to China’s big tech and the Chinese government’s policy stance are important variables for quickly resolving the differentiation phenomenon from the U.S. stock market.

Sangyoung Seo, Researcher at Mirae Asset Securities: “The U.S. will not implement aggressive monetary policy... Domestic stock market expected to rise”

Although Fed Chair Powell expressed confidence in the economy at the Jackson Hole Conference by mentioning very high inflation and significantly improved employment report results, he also pointed out the surge in COVID-19 cases, emphasizing that uncertainty remains. As a result, the U.S. stock market closed higher across the board last week.

Powell mentioned that even if tapering ends, rate hikes would not begin immediately afterward, making remarks aimed at stabilizing the market. This is at the same level as his comments at the July FOMC. Initially, the market was concerned that after the July employment data release, the Fed might shift to a more hawkish stance, but Powell’s remarks alleviated these concerns and had a positive impact on the financial market.

The rise due to Powell’s remarks, which have not changed significantly since the July FOMC, is expected to have a positive effect on the Korean stock market. The Philadelphia Semiconductor Index and the Russell 2000 Index rose by over 2%, and the weakening of the dollar and rising international oil prices, which increased risk asset preference sentiment, are expected to positively influence foreign investor flows, leading to a clear strength centered on large-cap stocks.

However, there is concern that the ISM Manufacturing Index, to be released on the 1st of next month, may be weak, potentially introducing issues related to economic slowdown. Accordingly, the domestic stock market is expected to start with about a 1% rise but rather than expanding the gains, sectoral differentiation is expected to proceed.

Kyoungmin Lee, Researcher at Daishin Securities: “KOSPI expected to fluctuate within the 3000-3300 box range”

The KOSPI is expected to continue fluctuating within the 3000-3300 box range. So far, the KOSPI has shown a downward trend due to worsening COVID-19 situations, China regulatory risks, monetary policy uncertainties in the U.S. and Korea, and foreign selling due to concerns about the semiconductor industry. During this process, an excessive concentration phenomenon occurred, and more time is expected to be needed to resolve these issues before normalization. Depending on whether the KOSPI surpasses and settles above 3200 during September, the short-term box range of the KOSPI could narrow to 3000-3200.

For the KOSPI to break out of the box range and resume a mid- to long-term upward trend, two conditions are necessary: the re-inflow of 2022 earnings expectations centered on semiconductors, and a downward trend in the won-dollar exchange rate. Since changes in semiconductors and the won-dollar exchange rate can turn into a virtuous cycle, until such changes are confirmed, it is advisable to maintain composure, keep a short grip on the bat, and focus on short-term trading.