![[Good Morning Stock Market] KOSPI Wobbles Again Amid Collapsed New York Market... Foreign Investor Flow Volatility Drives Changes](https://cphoto.asiae.co.kr/listimglink/1/2022061619181816430_1655374697.jpg)
[Asia Economy Reporter Lee Seon-ae] The domestic stock market, which rose slightly the previous day, is expected to start lower on the 17th. This is an inevitable impact of the New York stock market collapsing after an initial relief rally, overwhelmed by recession concerns due to aggressive tightening. There is widespread concern that the global liquidity reduction will lead to a full-fledged recession. Volatility is expected to be influenced by changes in foreign investors' net buying, which turned positive the previous day.
The New York stock market collapsed just one day after the Federal Reserve's (Fed) aggressive rate hike triggered a 'relief rally.' On the 16th (local time), the Dow Jones Industrial Average closed at 29,927.07, down 741.46 points (2.42%) from the previous session. This is the first time in 1 year and 5 months since January last year that the Dow index fell below the 30,000 mark at closing. The Standard & Poor's (S&P) 500 index plunged 123.22 points (3.25%) to 3,666.77, and the tech-heavy Nasdaq index plummeted 453.06 points (4.08%) to 10,646.10. The Nasdaq index is at its lowest level since September 2020. Despite the 0.75 percentage point rate hike, the largest in 28 years, investors who had bought stocks on hopes of uncertainty easing and the Fed's strong commitment to price stability appeared burdened by ongoing expectations of further Fed rate hikes and the resulting recession risk. Fed Chair Jerome Powell is expected to raise rates by 0.50 or 0.75 percentage points at the July meeting, indicating that high-intensity tightening may continue in the short term. As tightening continues globally, concerns are growing that the reduction in global liquidity will slow the economy.
Seo Sang-young, Head of Media Content, Mirae Asset Securities
The Korean stock market rose more than 2% at one point the previous day, buoyed by Fed's aggressive rate hike stance, including a 75 basis point increase in policy rates at the Federal Open Market Committee (FOMC) and an upward revision of the year's rate forecast to 3.4%. However, the rise narrowed after news that China would conduct COVID-19 testing every weekend in Shanghai and the State Council announced it would not implement excessive economic stimulus policies. Additionally, concerns about recession due to Fed's rate hikes also limited the gains.
As a result, the KOSPI closed up slightly by 0.16%, and the KOSDAQ by 0.34%. Meanwhile, the sharp declines in global stock markets, including the US, due to recession fears pose a burden on the export-dependent Korean market. Despite the dollar's significant weakness, the NDF dollar/won exchange rate rose, reflecting that foreign exchange markets in countries vulnerable to recession showed weakness against the dollar, which is also a concern. Although the possibility of an immediate recession in global economies is limited, it is true that demand slowdown caused by rate hikes from the Fed and other central banks has increased the risk of recession.
In particular, the market has started to question Fed Chair Powell's confidence in the economy, which had driven the US stock market's rise the previous day. Powell claimed there were no signs of recession in economic indicators at the time, but the market saw discrepancies with on-the-ground data, such as declining retail sales and the contracted housing data released that day. However, considering that detailed items in the released economic data may reflect temporary factors like weather, the spread of concerns is expected to be limited. Taking this into account, the Korean stock market is expected to start down about 1%, with direction determined by foreign investors' trading activity.
Kim Yumi, Researcher, Kiwoom Securities
Although the market had some relief the previous day due to the resolution of uncertainties about the June FOMC and the European Central Bank's (ECB) emergency meeting hinting at new bond purchases, the stock market plunged again as liquidity reduction and recession concerns spread with continued tightening moves by major countries such as Switzerland and the UK following the US rate hike.
As seen in many cases since the second half of last year where stock prices on the FOMC day and the following day showed different trends, there appears to have been a time lag in interpreting the results this time as well. High inflation levels and rate hikes in emerging markets including Argentina, as well as US housing market and manufacturing indicators reflecting recession, are also factors weighing on the market.
Today, the Korean stock market is expected to face downward pressure due to the weak US market, but considering that the gains in the latter part of the previous session were largely reversed and the upward momentum was not strong, the downside is likely to be supported. However, if hawkish remarks emerge at the Bank of Japan (BOJ) monetary policy meeting scheduled for today, or if caution rises ahead of the simultaneous expiration of US futures and options, market volatility may increase.
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