[Good Morning Stock Market] KOSPI Attempts to Settle at 2500... If Profit-Taking Volume Emerges, 'Breather'

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 12th, the KOSPI is expected to attempt to settle above the 2500 level. However, a short-term profit-taking volume is expected to emerge, leading to a consolidation trend.

Following the slowdown in the Consumer Price Index (CPI) growth rate, the Producer Price Index (PPI) also recorded a monthly decline for the first time in over two years, while the New York stock market closed mixed. On the 11th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,336.67, up 27.16 points (0.08%) from the previous session. The Standard & Poor's (S&P) 500 index fell 2.97 points (0.07%) to 4,207.27, and the tech-heavy Nasdaq index closed down 74.89 points (0.58%) at 12,779.91. Investors digested the previous day’s CPI data and felt relieved by the significant slowdown in the July PPI growth rate. The market expects that with inflation slowing, the Federal Reserve’s (Fed) tightening stance may ease.

Craig Erlam, Senior Market Analyst at OANDA, said in a report that overall, "The impact of the slowdown in U.S. inflation is influencing the market, and investors have definitely turned to a more optimistic mood." Jamie Cox of Harris Financial Group also stated in a report, "There are increasing indicators showing that we have turned the corner on inflation," adding, "The Fed no longer needs to slam the emergency brake on monetary policy, which is a good thing."

Kim Seok-hwan, Researcher at Mirae Asset Securities

The KOSPI is expected to start down about 0.2% today. The domestic market, which smoothly passed the options expiration day yesterday, needs to pay attention again to foreign investors’ inflows. Yesterday, due to foreign investors’ net buying of futures and the resulting arbitrage trading by financial investors, large-cap companies mainly rose, so some profit-taking selling pressure may also emerge.

According to the Korea Customs Service, exports through the 10th of this month amounted to $15.7 billion, a 23.2% increase compared to the same period last year, but the trade deficit reached $7.7 billion, raising concerns about a continued trade deficit in the second half of the year following the first half. In particular, by item, exports of petroleum products and passenger cars increased, but semiconductors and wireless communication devices decreased, which could be a factor dampening domestic investment sentiment.

Han Ji-young, Researcher at Kiwoom Securities

The U.S. headline producer price inflation for July (9.8%) slowed compared to June (11.3%) and turned negative month-over-month (-0.5%) for the first time since April 2020, reinforcing the outlook for a peak in U.S. inflation following July’s consumer price inflation (8.5%, down from 9.1% in June). Of course, it is premature for the market and the Fed to declare victory in the fight against inflation based on the July price data, and it remains true that it will be difficult to break away from an inflation path-dependent market for a considerable time. Nevertheless, avoiding the worst-case scenario that market participants could imagine?failure to control inflation → aggressive rate hikes → demand destruction → prolonged recession?is expected to maintain the market’s downside rigidity and resilience.

Furthermore, major companies in Korea, the U.S., and other countries have faced rising raw material and freight costs and have defended profitability through price pass-through over the past two to three quarters, but going forward, weak real demand has made this difficult. It is difficult for inflation to fall rapidly from this point, and wage increases remain ongoing. However, from the perspective that the inflation peak is becoming more likely, it is necessary to view positively that the pressure on production costs excluding wages is limited, reducing the risk of worsening profitability.

Yesterday, the KOSPI closed above 2500, supported by foreign and institutional investors’ net buying amid favorable U.S. July consumer price data. Today, it is expected to attempt to settle above 2500 again, supported by the U.S. producer price data falling short of expectations and expectations of easing corporate profitability issues due to a decline in domestic import prices (33.6% in June → 27.9% in July).

However, although the upward momentum was relatively weaker compared to the U.S., short-term profit-taking following four consecutive weeks of gains on a weekly basis is expected to limit the index’s upside today, resulting in a consolidation-type price movement. Also, considering that the MSCI quarterly review released early this morning showed no new inclusions or exclusions in the Korean index except for SK Telecom’s removal, it is necessary to be cautious about price volatility in stocks that had expectations for increased weighting for some time.

Kang Dae-seok, Researcher at Yuanta Securities

The domestic market rebound continues, supported by foreign investors’ net buying. The KOSPI index rebounded to 2523 based on the previous day’s closing price, recovering 10.9% from the early July low and offsetting the late June decline. With the dollar’s strength easing, it is judged that foreign investors are increasingly likely to view the domestic market positively from a relative perspective. This is evident when comparing with the Taiwan stock market, which is most frequently compared as an IT-centered emerging market. Due to differences in last year’s economic recovery strength and COVID-19 spread, the Korean won depreciated more against the dollar compared to the Taiwan dollar, which remained relatively strong, and this was reflected in the stock markets. Ultimately, the KOSPI rose only 3.6% last year, while the Taiwan Weighted Index surged 23.7%. However, the situation is now changing from a relative perspective. Although domestic corporate earnings growth is continuously declining, it is still better than Taiwan’s, which has turned negative, and valuations are also calculated to be lower.