[Good Morning Stock Market] Rising 'Inflation'... Focus on Solar Energy

Solar Power Generation

[Asia Economy Reporter Junho Hwang] On the 7th, after the Memorial Day holiday, South Korea's stock market is expected to see a stock-specific market amid various factors.

On the 6th (local time), the U.S. New York stock market closed higher with major indices (Dow +0.05%, Nasdaq +0.40%, S&P 500 +0.31%, Russell 2000 +0.36%). On that day, due to the Chinese government's active stimulus measures, expectations emerged that China's growth rate in the second half of this year would reach the targeted 5% range, causing the Nasdaq to rise nearly 2% intraday.

However, concerns over inflation (price increases) grew, and the market ended barely maintaining its gains. U.S. gasoline prices approached an average of $5 per gallon, and Saudi Arabia's Aramco announced a significant increase in crude oil prices exported to Asia from the previous $4.4 to $6.5. Accordingly, West Texas Intermediate (WTI) crude oil prices exceeded $120 per barrel, causing energy prices to rise sharply. This heightened concerns about inflation, pushing the U.S. 10-year Treasury yield above 3%. This resulted in technology stocks giving back their gains.

While concerns about a recession eased based on employment data, conversely, the possibility of interest rate hikes due to inflation and other factors increased, putting pressure on the stock market. Lee Kyung-min, a researcher at Daishin Securities, said, "With the May employment data released, the U.S. stock market rebounded overnight on relief that there is no recession, but the market is interpreting this as increasing the possibility of interest rate hikes." On the 3rd, May nonfarm payrolls increased by 390,000, significantly exceeding the forecast of 328,000. The labor force participation rate slightly rose to 62.3% from 62.2% the previous month. The unemployment rate remained unchanged at 3.6%.

Such concerns are expected to be reflected in South Korea's stock market as well. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, stated, "The KOSPI is expected to start down about 0.7% on that day." He explained, "The Asian markets rose on the 6th due to confidence in the Chinese economy and expectations of easing big tech regulations, which is positive for the Korean stock market, but the news on the 3rd about the downgrade of investment opinion and target price for Micron will be absorbed by the market, and considering the increased foreign investor supply-demand instability due to the strong dollar, the market is expected to start down and then proceed with stock differentiation." Investment bank Piper Sandler downgraded Micron's investment rating to underweight and lowered the target price from $90 to $70, citing that DRAM prices have not recovered and that demand will decrease if the economy slows, accelerating the stock price decline.

Meanwhile, the solar energy-related sector is expected to attract attention on this day. The U.S. Biden administration's exemption of tariffs on solar panels imported from four Southeast Asian countries and the invocation of the Defense Production Act to support clean energy are expected to boost not only the solar energy sector but also electric vehicles and secondary battery sectors. In particular, the fact that Chinese regulatory authorities have completed a security investigation of Didi Chuxing and are expected to lift regulations such as suspending new user acquisitions is also likely to have a positive impact on related stocks.