[Good Morning Stock Market] "KOSPI Volatility Expansion vs Large Tech Stocks-Led Rally"

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[Asia Economy Reporter Hwang Yoon-joo] On the 27th, the domestic stock market is expected to start higher and show strength centered on large technology stocks, while at the same time, forecasts suggest an expansion in volatility. The overlapping domestic and international negative factors such as recession concerns, inflation control, and exchange rates indicate that recent market predictions are challenging.

On the 24th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,500.68, up 823.32 points (2.68%) from the previous session. The S&P 500, centered on large-cap stocks, ended at 3,911.74, up 116.01 points (3.06%), and the tech-heavy Nasdaq closed at 11,607.62, rising 375.43 points (3.34%). The previous trading day also saw sharp surges in the KOSPI (+2.3%) and KOSDAQ (+5.0%). Market experts evaluated the simultaneous rally in the US and domestic markets as having a strong technical rebound character.

Seo Sang-young, Head of Mirae Asset Securities Division: "Korean Stock Market Expected to Start Up Around 1.5%... Strength Anticipated Centered on Large Technology Stocks"

Head Seo stated, "The Korean stock market is expected to start with an increase of around 1.5% and continue its strength centered on large technology stocks."

He explained, "Considering the offshore non-deliverable forward (NDF) dollar-won exchange rate, the dollar-won rate is expected to start about 11 won lower, and the Philadelphia Semiconductor Index, which recently contributed to the decline in the Korean stock market, surged 4.45%, which will positively affect overall investor sentiment."

He also positively evaluated the rise in the US stock market for the Korean market. Head Seo said, "James Bullard, President of the St. Louis Fed, argued that the market overreacted to recession concerns, which are a recent factor in increased market volatility, easing those fears and leading to gains that are positive for the Korean stock market. Especially, if inflation eases faster than expected, it could allow for a slower pace of interest rate hikes. The downward revision of the expected inflation rate announced that day is also a factor improving investor sentiment."

In fact, the University of Michigan's 12-month expected inflation rate for June was 5.3%, 0.1 percentage points lower than the preliminary estimate (5.4%). The 10-year expected inflation rate fell from 2.65% in early June to 2.56% on the 24th.

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Earlier, Federal Reserve Chairman Jerome Powell claimed that the economy would show stronger-than-expected performance in the second half of the year, followed by Fed President Bullard stating that the US stock market overreacted to recession concerns. Along with the downward revision of expected inflation in the consumer sentiment index final figures, risk asset preference was stimulated, leading to a rise in the US stock market on the 24th (local time).

Head Seo said, "The MSCI Korea Index ETF rose 3.98%, the MSCI Emerging Markets Index ETF increased 2.37%, and the 1-month NDF dollar-won rate was 1,288.80 won. Reflecting this, the dollar-won exchange rate is expected to start about 11 won lower," adding, "The KOSPI is expected to start up around 1.5%."

Han Ji-young, Kiwoom Securities Researcher: "The Problem Is Still Inflation... Volatility Expansion Phase to Continue"

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Han Ji-young, a researcher at Kiwoom Securities, forecasted that the KOSPI index would continue in a phase of expanded volatility. She cited ▲global recession concerns ▲results of key economic indicators such as Korea’s June exports and the US Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) ▲additional credit forced selling volumes ▲changes in the won-dollar exchange rate falling below the 1,300 won level as reasons.

Researcher Han analyzed, "When the KOSPI hit a yearly low on the 23rd, the number of stocks hitting 52-week lows approached 460, marking the highest since the financial crisis (627 on October 23, 2008) and the pandemic (654 on March 19, 2020). This recent series of market instability ultimately stems from inflation issues."

She pointed out, "To tackle the root cause of inflation, demand contraction through interest rate hikes is inevitable. However, as Fed President Bullard emphasized on the 24th, considering the favorable economic conditions despite the demand shock caused by tightening, the recession concerns may be exaggerated."

Researcher Han added, "It is also important to note that the Fed’s strong tightening signals to curb inflation are being reflected in financial markets and real economy agents. Until the release of the June US consumer price data scheduled for July, the market will coexist with recession fears and expectations of declining inflation, showing technical rebounds amid frequent volatility expansions."

The consensus for the US Consumer Price Index (CPI) in June is 8.3%, slightly down from 8.6% in the previous month.

Researcher Han emphasized that volatility related to economic indicators and earnings will persist throughout this week in the KOSPI market, stating, "Attention should be paid to macroeconomic indicator results related to domestic listed companies’ earnings, such as Korea’s June exports and the US ISM Manufacturing PMI, which are scheduled to be announced on the 1st."

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She also predicted, "Since earnings concerns for domestic semiconductor stocks remain, after the earnings announcement of US-based Micron Technology on the 30th, market attention will focus not only on that company but also on changes in earnings outlooks for the domestic semiconductor sector."

She advised, "Although there was a sharp rebound last Friday, risks from credit forced selling volumes still exist. It is appropriate to remain cautious of supply-demand noise caused by forced selling this week as well."