[Good Morning Stock Market] "Expecting Semiconductor Stocks Rebound Amid Oversold and Bottoming Theories... Beware of Volatility from Forced Liquidations"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The US stock market opened higher due to a rebound buying following recent declines but closed mixed after news of the Nord Stream gas pipeline explosion emerged. Notably, the Nasdaq surged as much as 2.2% when key economic indicators improved, easing concerns about a US recession. However, the sharp rise in European natural gas prices highlighted Germany's recession issues, triggering selling pressure and a shift to a decline, ultimately closing mixed. The Dow recorded -0.43%, Nasdaq 0.25%, and S&P 500 -0.21%.

Micron's (3.48%) upward momentum is particularly noteworthy. Although JP Morgan downgraded Micron's target price from $80 to $65, it maintained an overweight rating, stating that valuations reflect levels seen at the semiconductor industry's bottom due to prior declines. JP Morgan also announced that supply expansion plans will be reduced next year, which is positive as it could lead to semiconductor price increases. Consequently, the Philadelphia Semiconductor Index rose 1.04%, supported by gains in Nvidia (1.51%) and AMD (1.31%).

The US stock market's early strength due to rebound buying after recent declines is expected to positively influence the Korean stock market. However, the surge in European natural gas prices following the Nord Stream explosion has intensified concerns about a Europe-driven recession, increasing financial market volatility and posing a burden. Nevertheless, the solid US economic indicators and JP Morgan's positive outlook on the semiconductor sector are likely to drive strength in related industries within the Korean market.

[Image source=Reuters Yonhap News]

◆ Seosangyoung, Head of Media Content Division at Mirae Asset Securities: "Expecting a decline of around 0.5% at the open... Semiconductor sector to show resilience"

Yesterday, the Korean stock market opened lower due to the continued decline in US markets such as Nasdaq. The ongoing volatility in foreign exchange and bond markets dampened overall investor sentiment, leading to increased foreign selling and driving the stock market down. However, general bargain hunting remained active, and the clear strength in Asian markets led to some retracement following recent declines. Particularly, a sharp influx of buying centered on financial investments before the close resulted in the KOSPI rising 0.13% and KOSDAQ 0.83% by the end of the day.

Among these factors, the early strength in the US market due to rebound buying after recent declines is positive for the Korean market. However, the surge in European natural gas prices following the Nord Stream explosion has intensified concerns about a Europe-driven recession, increasing financial market volatility and acting as a burden. Notably, the dollar, which had been weak amid related news, strengthened, and the rise in US 10-year Treasury yields are considered factors dampening investor sentiment.

Nonetheless, the solid US economic indicators have eased concerns about a US recession, which has been driving recent market changes, and this is positive. Additionally, expectations for China's economic stimulus ahead of the National Day holiday and the Party Congress have improved investor sentiment. Furthermore, JP Morgan's positive outlook on Micron (3.48%), noting that valuations are at levels seen during the worst semiconductor market conditions, is expected to drive strength in related sectors within the Korean market. Considering this, the KOSPI is expected to open down around 0.5%, but some large-cap stocks, including those in the semiconductor sector, are expected to show resilience.

◆ Han Ji-young, Researcher at Kiwoom Securities: "Semiconductor-related stocks expected to rebound... Caution advised regarding volatility from forced liquidation"

While the Nasdaq has successfully rebounded and other major indices and global markets show signs of easing panic selling that appeared after the September Federal Open Market Committee (FOMC) meeting, sensitivity to rising interest rates remains high, keeping stock price volatility elevated. The environment remains challenging to find clear signs that aggressive tightening fears have eased enough to trigger a full market rebound.

From the Federal Reserve's perspective, suppressing rising or entrenched inflation expectations is a critical responsibility, so it is reasonable that they continuously send hawkish signals to market participants. However, recent internal disagreements among Fed officials regarding the intensity of tightening suggest that future data on inflation and employment could lead to changes in the pace of tightening. Given this, rather than continuing to reduce equity exposure under the assumption that aggressive tightening has significantly opened downside risks, it seems appropriate to adopt a strategy that acknowledges much of the Fed-related negative news is already priced in and remains open to a reversal depending on upcoming inflation and employment data.

Yesterday, the domestic market saw the KOSPI fall below the 2200 level during the session amid macroeconomic headwinds and forced liquidation due to credit shortages, leading to significant volatility. However, supported by bargain buying mainly from institutions and foreigners, the market closed higher.

Today, amid perceptions of excessive declines, the easing of panic selling in the US market, and the Philadelphia Semiconductor Index's strength (1.0%) driven by Micron (3.48%) and others recognizing the semiconductor sector's bottom, the market is expected to recover. However, it is necessary to keep in mind the sharp increase in credit shortage accounts following Monday's market crash. Considering that forced liquidations typically occur two trading days later, forced liquidation-related volumes are expected to further increase supply-demand volatility today.