[Good Morning Stock Market] "Thank You Biden" Easing Concerns Over Economic Slowdown, KOSPI Expected to Rise

Nasdaq Index Closes Up 1.59%
Boosted by Rising Expectations of Tariff Cuts on Chinese Goods

If Chinese Government Follows with Large-Scale Investments,
Concerns Over Domestic and Global Recession Will Ease

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Following news that U.S. President Joe Biden may reduce retaliatory tariffs on Chinese products, the three major U.S. stock indices in New York all showed gains. This was viewed positively as it could ease pressures from the global economic slowdown. With expectations that the Chinese government will implement large-scale fiscal policies to stimulate the economy next month, it is analyzed that a favorable investment environment will be established for the domestic stock market.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Expansion of risk asset preference sentiment... KOSPI starts with gains”

On the 23rd (local time), the U.S. Nasdaq index closed up 1.59%, while the Dow Jones (1.98%) and S&P 500 (1.86%) also rose. Recently, after U.S. Treasury Secretary Yellen mentioned that tariffs on China are causing greater harm to American consumers and businesses, President Biden appeared to agree with this view, further increasing expectations for tariff reductions.

Economic indicators supporting expansion also positively influenced the stock market. The Chicago Federal Reserve Bank’s National Activity Index was recorded at 0.47 last month, exceeding 0.36 the previous month. This index was developed to predict inflation but is known for accurately forecasting economic turning points. If it falls below -0.7 after an expansion phase, it signals a recession; if it rises above 0.2 after a recession phase, it indicates continued economic expansion.

JP Morgan’s upward revision of net interest margin forecasts (6.14%) was also favorable for the stock market. Recession concerns tend to spread when short-term and long-term interest rates invert. Interest rate hikes reduce bank lending, which can shrink corporate capital investment. However, JP Morgan stated that unlike typical past trends, loan growth is expected to improve earnings, driving gains in the banking sector.

Considering these factors, the domestic stock market is expected to show an upward trend today. With the U.S. dollar weakening significantly, the won-dollar exchange rate is expected to decline, which may also ease foreign investor supply and demand pressures.

Sanghyun Park, Researcher at Hi Investment & Securities: “Chinese government investment and tariff reductions on China are positive for the domestic economy”

From the export growth rate indicators between the 1st and 20th of this month, the focus is on exports to the Greater China region. While the overall export growth rate (24.1% compared to the same period last year) showed strong performance, exports to China grew only 6.8%, and exports to Hong Kong declined by 31.7%. The Shanghai lockdown and concerns about economic slowdown have become obstacles to exports to the Greater China region.

Considering the number of working days, the export growth rate to China is effectively negative. Semiconductor exports increased by only 13.5%, suggesting stagnation. If the slump in exports to China prolongs, the export cycle may enter a full-scale slowdown phase, and semiconductor exports could also turn downward if negative factors in China persist.

Nevertheless, the reason for judging that a recession is premature is that the Chinese government is taking steps to stimulate the economy. The Chinese government is expected to issue special bonds worth about 1 trillion yuan to secure funds for stimulus and implement central government-level consumption promotion measures to revive domestic demand.

The possibility of reducing retaliatory tariffs on China is also positive for the Chinese and global economies. If the reduction materializes, it is expected to ease inflationary pressures in the U.S. while contributing to China’s economy, thereby helping to mitigate recession risks. Additionally, it is anticipated to halt the outflow of foreign capital from both the Chinese and Korean markets.