[Good Morning Stock Market] Sharp Rebound in US Stocks... KOSPI Expected to Rise on Reactive Buying

Major US Indexes Rebound Sharply and Close Higher
Strong IBM Earnings Raise Possibility of Gains in Korean Tech Stocks

[Asia Economy Reporter Ji Yeon-jin] On the 24th (local time), the U.S. New York stock market saw major indices plunge nearly 5% intraday amid concerns over a possible armed conflict between Russia and Ukraine ahead of the Federal Open Market Committee (FOMC) meeting. However, the indices sharply rebounded and closed higher following news of easing tensions. The Dow Jones Industrial Average closed at 34,364.50, up 99.13 points (0.29%) from the previous session. The Standard & Poor's (S&P) 500 index and the Nasdaq index rose by 0.28% and 0.63%, respectively.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. stock market experienced a sharp intraday decline as selling pressure emerged amid the escalation of the Ukraine crisis, and concerns over the U.S. pushing sanctions against Russia weigh on the Korean stock market. In particular, the U.S. is reportedly considering applying the Foreign Direct Product Rule to prohibit exports of products using U.S.-made software or technology to Russia, which could burden the semiconductor, IT home appliances, smartphone, and automotive sectors.

The Korean stock market fell the previous day due to the spread of geopolitical risks related to Ukraine. The possibility of armed conflict between Russia and NATO over Ukraine could negatively impact the global economy, dampening foreign investor sentiment. The prospect of sanctions against Russia also highlighted the risk of direct damage to Korean companies, leading to an expansion of foreign investors' net selling in cash and futures, which added to the pressure.

However, considering that sanctions against Russia could also adversely affect the U.S. economy, the likelihood of immediate implementation is low. Efforts by Russia, the U.S., and the European Union (EU) to resolve the Ukraine issue are ongoing, which raises expectations for rebound buying in the Korean stock market. Additionally, the high bid-to-cover ratio in the U.S. 2-year Treasury auction ahead of the FOMC has increased expectations for interest rate stability, which is favorable. Taking these factors into account, the Korean stock market is expected to start flat and then show strength as rebound buying flows in.

◆ Jiyoung Han, Researcher at Kiwoom Securities = Given the lingering negative factors such as FOMC caution and the possibility of war between Russia and Ukraine that have yet to be fully digested, market volatility is expected to continue expanding.

However, after the U.S. market close, IBM reported better-than-expected earnings, causing its shares to surge over 5% in after-hours trading. This has sustained expectations for the earnings season of domestic and international tech and growth stocks. At this point, it is judged appropriate to adopt a strategy of phased buying focused on sectors supported by earnings growth while preparing for increased volatility in both Korean and U.S. markets.

Today, the domestic stock market is expected to show an upward trend, supported by the perception that the previous day's sharp decline was excessive and the successful rebound in the U.S. stock market. Since last week, growth and small-to-mid cap stocks have plunged, leading to increased forced selling by individual investors. On the 21st, forced selling amounted to 66 billion won compared to margin loans, marking a record high. Forced selling is expected to continue today, which may increase short-term price volatility of affected stocks in the early session, but this should be regarded as a short-lived factor.

◆ Yujun Choi, Researcher at Shinhan Financial Investment = Concerns over the pace of tightening persist, and risk-averse sentiment due to the blackout period is also at its peak. The yield curve has flattened, reflecting downward pressure on the economy from rapid tightening. The domestic stock market has fallen for two consecutive days, with both KOSPI and KOSDAQ approaching the lower boundary of the Ichimoku cloud on the weekly chart. Volatility has increased due to a supply-demand gap. Some forced selling is estimated to have occurred in the early session. Most sectors except food and beverages declined, with media, gaming, and IT sectors showing significant drops influenced by the Nasdaq's continuous weakness.

Profit-taking pressure also affected clothing and financial stocks, which had relatively strong prices recently, while food and beverages attracted bottom-fishing due to their defensive appeal, price hikes by ramen companies, and expectations of strong exports. In the case of cyclical stocks, risk-averse sentiment made them more vulnerable to supply-demand imbalances. Uncertainty is heightening risk-averse sentiment, and considering the Federal Reserve's tendency to emphasize communication with the market, concerns seem excessive. However, the possibility of mini stagflation appears to be partially reflected in stock prices. The likelihood of passing the volatility peak this week is weighted, but confirming a trend reversal requires observing inflation slowdown, and the importance of earnings has increased.