[Good Morning Stock Market] Eased Omicron Concerns... "KOSPI Expected to Surpass 3000"

US Stock Market Closes with Sharp Gains... Positive Impact Expected on Domestic Market
Possibility of Export-Focused Large Caps Leading After Year-Long Suppression

On the 1st (local time), a large Christmas tree is lit up in front of the New York Stock Exchange located in Manhattan, New York, USA. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the perception spreads that the new COVID-19 variant 'Omicron' is less severe than the previous Delta variant, the U.S. stock market closed sharply higher, led by technology stocks. The KOSPI is also expected to surpass the 3000 mark again since late last month.

On the 7th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,719.43, up 1.40% from the previous day. The S&P 500 index also rose 2.07% to close at 4,686.75. The Nasdaq index, which is technology stock-centered, recorded the largest gain, closing up 3.03% at 15,686.92.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities= The U.S. stock market has rebounded from recent declines, rising for two consecutive days and gaining 4-5% from last week's lows. This optimism was driven by the understanding that Omicron's fatality rate is less severe than initially thought. Additionally, a rebound buying trend emerged mainly in large technology stocks that had experienced significant declines. The fear of missing out (FOMO) sentiment, which can cause investors to feel left out in a rising market, spread, and concerns about economic slowdowns in the U.S. and China improved based on various economic indicators, further influencing the market.

Unlike in the past, the market is now highly sensitive to positive news from individual companies. A representative example is Apple, which surged 3.41% after Morgan Stanley raised its target price. Not only the U.S. stock market but also European and Asian markets saw strong gains in technology stocks. However, since the Federal Reserve's (Fed) hawkish stance has become a given, the likelihood of this trend continuing long-term is limited. Especially for technology companies currently recording losses and with high valuations, the tightening policies of the Fed and other central banks worldwide could pose a burden.

South Korea's stock market is also expected to be positively influenced by the U.S. market's upward trend. Although the Fed's hawkish stance continues, interest rates remain low, and the FOMO-driven buying, similar to that during the COVID-19 pandemic, is believed to have triggered the strength in technology stocks. These factors are expected to play a role in the domestic market as well, with the KOSPI likely to start above 3000 on the 8th.

Of course, the Federal Open Market Committee (FOMC) meeting next week is likely to see the Fed intensify its tightening measures, so the expansion of this trend is unlikely. Moreover, since the factors driving the U.S. stock market's strength have already been largely priced in and with the futures and options expiration day approaching, changes are expected depending on foreign investors' futures trends. In particular, the size of dividend-linked arbitrage positions centered on financial investments may shrink due to recent interest rate hikes and dividend payout ratios, making volatility inevitable depending on foreign futures movements.

◆ Jiyoung Han, Researcher at Kiwoom Securities= As revealed by major research institutions in countries where Omicron emerged, such as the U.S. and South Africa, the Omicron variant appears to have less severe symptoms and lower fatality rates compared to the Delta variant. Although new variants will continue to emerge, it is expected that, similar to the Delta and Omicron waves, governments will not implement stringent full lockdown measures. Considering this, future market corrections due to COVID-19 are likely to present additional buying opportunities.

Meanwhile, although the U.S. federal government shutdown was resolved through an agreement between the Democratic and Republican parties on the 2nd, the issue of raising the debt ceiling remains unresolved until the official end of congressional activities on the 13th. Considering the short-term economic slowdown concerns caused by debt ceiling negotiation uncertainties last October and the need to secure votes ahead of next year's midterm elections, it is appropriate to weigh the likelihood of the debt ceiling increase passing.

With the easing of Omicron concerns and U.S. political uncertainties, the U.S. stock market surged, and the KOSPI is expected to surpass 3000. Attention should be paid to the fact that, unlike the previous challenge to the 3000 level last month, a favorable market environment is being created due to the won's strengthening trend, improved foreign investor demand, expectations for improvements in the semiconductor and automobile industries, and easing concerns about the Chinese economy. Considering the supply-demand burden on small and mid-cap stocks due to year-end major shareholder capital gains tax avoidance selling, it is necessary to keep open the possibility that large export-oriented stocks, which have been suppressed throughout the year, may emerge as leading sectors this month.