[Good Morning Stock Market] US 3 Major Indexes Close Lower Amid Recession Concerns... KOSPI Faces Inevitable Downward Pressure

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The US stock market continued its slight decline following the previous day's drop due to the Federal Reserve's (Fed) aggressive tightening pace. The persistent downward revision of leading economic indicators highlighted recession concerns, which widened the losses. In particular, the dollar remained strong amid the Fed's rapid interest rate hikes, and as Treasury yields continued to surge, concerns over third-quarter earnings intensified, dampening investor sentiment. Consequently, all three major New York indices closed lower: Dow Jones 30 (-0.35%), Nasdaq (-1.37%), and S&P 500 (-0.84%).

Notably, Nvidia (-5.28%) fell as analyses suggested that the pace of technological improvements might slow compared to the past, following the rise in Treasury yields. This raised concerns about a potential slowdown in earnings growth, impacting valuation pressures. AMD (-6.99%) also declined alongside, causing the Philadelphia Semiconductor Index to drop by 2.81%.

The US market's decline due to recession fears and weakened investor sentiment is expected to weigh on the Korean stock market as well. Considering Korea's high export dependency, the highlighted recession concerns could negatively affect foreign investor flows, adding to market instability. Additionally, the 2.81% drop in the Philadelphia Semiconductor Index amid worries about earnings growth pace is another negative factor. Taking these into account, the Korean stock market is expected to start flat.

◆ Seosangyoung, Head of Media Content at Mirae Asset Securities: "KOSPI to Start Flat... Individual Stock Market to Continue"

Today, the KOSPI index is expected to open flat. Yesterday, the Korean market started lower after confirming the Fed's aggressive interest rate hike stance. Particularly, the strong dollar caused the won-dollar exchange rate to exceed 1400 won, leading to a significant weakening of the won, which broadly dampened investor sentiment and was a major cause of the decline. However, despite recession concerns, the secondary battery sector, expected to benefit from robust earnings and the US Inflation Reduction Act, showed strength, helping to narrow the market's losses. As a result, the Korean market closed with a modest decline: KOSPI down 0.63%, KOSDAQ down 0.46%.

Meanwhile, the US market's decline due to heightened recession fears and weakened investor sentiment is expected to burden the Korean market. Given Korea's high export dependency, the emergence of recession concerns could negatively impact foreign investor flows, adding to market instability. Furthermore, the 2.81% drop in the Philadelphia Semiconductor Index amid concerns about earnings growth pace is also considered a negative factor.

However, the offshore non-deliverable forward (NDF) market suggests a potential strengthening of the won against the dollar, which is positive. If the won shows some retracement and strengthens, it is expected to positively influence the stock market. Additionally, the likelihood of further aggressive Fed monetary policy tightening is low, which is also positive. Considering these factors, the Korean market is expected to start flat and maintain a solid performance amid an individual stock-driven market.

On the 22nd, when the won-dollar exchange rate surpassed 1,400 won for the first time in 13 years and 6 months, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Mo Honam munonam@

◆ Han Ji-young, Researcher at Kiwoom Securities: "KOSPI to Start Under Downward Pressure... Attention Needed on Forex Market Movements"

Currently, the KOSPI and major global stock markets face a situation where they are testing the yearly lows recorded in early July, following consecutive shocks from the August Consumer Price Index (CPI) and the September Federal Open Market Committee (FOMC) meetings. Concerns about recession are rising due to fears that the Fed's high-intensity tightening to combat inflation will cause demand destruction. In fact, after the giant step (0.75% hike) at the September FOMC, a 75 basis point hike in November and a 50 basis point hike in December have become likely, pushing the 10-year Treasury yield above 3.7%. Meanwhile, the US growth forecast has dropped to around 0.3%, making the possibility of a third-quarter contraction not dismissible.

Accordingly, despite macroeconomic headwinds such as the September FOMC shock and the won-dollar exchange rate surpassing 1400 won, the Korean market narrowed intraday losses and closed with support from strength in the secondary battery sector, some cyclical stocks, and valuation attractiveness. Today, the market is expected to open under downward pressure due to the Nasdaq's weakness following the FOMC aftershocks and the Philadelphia Semiconductor Index's decline (-2.8%) amid forecasts of falling semiconductor prices in the fourth quarter. Meanwhile, the Bank of Japan intervened in the forex market for the first time in 24 years to defend the yen's value, and Korea is also showing increased willingness to prepare for further sharp rises in the won-dollar exchange rate through various channels. Considering this, movements in the forex market during the trading session are expected to influence stock market volatility.