[Good Morning Stock Market] Powell Shows Economic Confidence... Will the Korean Stock Market Successfully Rebound?

▲ Jerome Powell, Chair of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] On the 23rd, the Korean stock market is expected to start flat. The U.S. stock market fell by over 1% at the opening the previous day due to recession concerns, but managed to turn upward during Federal Reserve (Fed) Chair Jerome Powell's congressional hearing. The rise was driven by increased bargain-hunting sentiment amid oversold conditions and Powell's positive remarks about the economy. However, as the market approached closing, persistent economic anxiety led to profit-taking, causing the three major indices?Dow (-0.15%), Nasdaq (-0.15%), and S&P 500 (-0.13%)?to close slightly lower.

By sector, real estate (1.5%), healthcare (1.4%), and utilities (1%) showed strength, while energy (-4.2%), materials (-1.3%), and industrials (-0.5%) weakened. The energy sector, which surged the previous day, declined due to concerns over reduced oil demand amid recession fears and news of the Biden administration's push for a fuel tax exemption bill, which caused oil prices to plunge. Large tech stocks such as Apple (-0.38%), Alphabet (-0.05%), and Tesla (-0.4%), which had rebounded the day before, also gave up some of their gains.

◆Sangyoung Seo, Head of Media Content at Mirae Asset Securities: "Flat Start Expected... Strong Investor Sentiment for Earnings and Dividend Stocks"

The Korean stock market started higher the previous day, buoyed by the strong U.S. market, but turned lower due to foreign selling, widening losses. Remarks by U.S. Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz about recession risks further deepened the decline. Additionally, negative news from TSMC weighed on tech stocks across Asia, leading to broader declines and heavier losses in related Korean stocks. Despite these being known issues, investor sentiment became extremely cautious, increasing index volatility. As a result, the KOSPI fell 2.74% and the KOSDAQ dropped 4.03% to close the session.

Meanwhile, the U.S. market showed some optimism as Fed Chair Powell expressed some concerns about the economy but remained confident that expansion would continue, which is a positive factor for the Korean market. Furthermore, the decline in international oil prices due to increased supply and the ongoing drop in U.S. gasoline prices could ease inflation concerns, adding to the positive outlook.

The ongoing bargain-hunting sentiment amid oversold conditions is also seen as a positive for the Korean market. The KOSPI's 12-month forward price-to-earnings ratio (Fwd PER) is currently below 8, compared to a 10-year average of 9.6, and the price-to-book ratio (PBR) has fallen below 0.9, approaching the 2008 financial crisis level (PBR 0.83). This suggests the market has been excessively depressed. Although the upside potential is limited, investor sentiment toward earnings-based and dividend stocks is expected to remain solid. Therefore, the Korean market is likely to start flat and go through a process of absorbing selling pressure.

◆Jiyoung Han, Research Analyst at Kiwoom Securities: "Rebound Due to Technical Buying... However, Potential for Increased Supply-Demand Noise"

In the previous trading session, the KOSPI was dragged down by forced selling amid macroeconomic uncertainties. Rumors of fund liquidations in parts of Asia and other speculative factors triggered panic selling, pushing the index to new lows.

Today, the Korean market is expected to rebound, led by technical buying in heavily oversold sectors such as secondary batteries, semiconductors, and internet stocks. However, there is a need to remain cautious about potential intraday supply-demand noise caused by forced selling related to margin loans, CFDs (including foreign accounts), and other factors during pre-market or intraday trading.

Since June, the KOSPI has fallen approximately 12.8%, and since the beginning of the year, it has dropped 21.3%, entering a bear market. The decline from the 52-week high is 29.3%, which is comparable to the 35.7% drop during the COVID-19 pandemic peak. The U.S. VIX index, a proxy for global market volatility, stands around 30 points, whereas it exceeded 80 points during the pandemic, suggesting that the bottom for major markets like Korea may still be distant. However, unlike the pandemic period, which was driven by systemic risk and black swan events, the current downturn is due to anticipated inflationary pressures, marking a key difference. Furthermore, the KOSPI's forward and trailing PBRs are at 0.85 and 0.92 respectively, close to the pandemic period averages of 0.77 and 0.79. Major technical indicators such as the RSI also point to oversold conditions, indicating that further downward price pressure may be limited at this time.