[Good Morning Stock Market] KOSPI, Time for Absorbing Sell-offs... "Effective to Focus on Earnings Improvement Stocks"

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Overnight, the U.S. New York stock market showed an upward trend until mid-session supported by bargain buying, but continued sell-offs in tech stocks eventually led to a weak close.

On the 20th (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,715.39, down 313.26 points (0.89%) from the previous session. The Standard & Poor's (S&P) 500 index closed at 4,482.73, down 50.03 points (1.1%) from the previous session. The tech-heavy Nasdaq index ended trading at 14,154.02, down 186.23 points (1.3%) from the previous session.

The Federal Reserve (Fed) moving earlier than expected to raise interest rates and the prospect of early monetary tightening weighed on investor sentiment. The sell-off centered on tech stocks sharply curtailed the market's attempt to rebound on bargain buying.

Domestic market experts expect the KOSPI to also show a downward trend as it goes through a process of digesting sell orders due to disappointment over the failure of the U.S. market to rebound. However, there is analysis that buying will concentrate on stocks showing clear improvement ahead of the full-scale earnings announcements starting next week.

◆ Seosangyoung, Researcher at Mirae Asset Securities = The U.S. stock market, including the Nasdaq which had risen more than 2% on a technical rebound, turned downward due to regulatory concerns and the expansion of geopolitical risks between Russia and Ukraine, which is expected to weigh on the Korean stock market.

Of course, the clear strength of companies with improving earnings highlights positive expectations for the Korean earnings season starting next week.

Additionally, rather than an expansion of geopolitical risks from Russia, the preparation of Biden-Putin talks reduces the likelihood of increased concerns, which is also positive.

Considering this, the Korean stock market is expected to show a process of digesting sell orders after a downward start. However, given the expanded preference for safe assets, active responses are expected to be limited, resulting in a market focused on individual stocks.

◆ Han Jiyoung, Researcher at Kiwoom Securities = The environment surrounding the U.S. stock market is creating difficult conditions mainly for growth stocks. Although there was a rebound until mid-session, raising hopes for an escape from the correction phase, the market has not properly digested existing negative factors such as interest rate levels and speed concerns, and geopolitical risks between Russia and Ukraine. At this point, it is necessary to focus on the Fed’s policy uncertainty related to inflation, geopolitical conflicts, and the Q4 earnings season.

The domestic market, which showed a rebound in the previous trading day, is also expected to face renewed downward pressure due to disappointment over the failure of the U.S. market to rebound. Additionally, Netflix, which announced earnings after the market close, reported Q4 subscriber numbers in line with expectations but significantly lowered its Q1 guidance, causing its after-hours stock price to plunge about 18%, which is also a burden.

The recent deepening correction in the domestic market seems excessive as it coincided with supply-demand factors ahead of a large initial public offering (IPO). However, it is judged appropriate to focus on risk management until the January Federal Open Market Committee (FOMC) meeting concludes.