[Good Morning Stock Market] Nasdaq Falls 2% · Remarks from Global IB Leaders... KOSPI Weakness Inevitable

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The three major U.S. stock markets all closed lower the previous day. Despite the dollar weakening due to news of China's expanded easing of its zero-COVID policy, the markets underperformed. In particular, the recent shift in market focus from Federal Reserve (Fed) monetary policy to concerns about an economic recession increased downward pressure. Ahead of the market open, Jamie Dimon, CEO of JP Morgan, expanded the sell-off by stating that inflation could trigger a recession next year. Additionally, negative news surrounding the online advertising market, centered on Meta (-6.79%), and antitrust issues led to selling pressure on tech stocks, further dampening investor sentiment and driving the decline. As a result, the Dow Jones Industrial Average fell by -1.03%, the Nasdaq by -2%, and the Standard & Poor's (S&P) 500 index by -1.44%.

The continued concerns about economic slowdown in the U.S. stock market, particularly the 2% drop in the tech-heavy Nasdaq, are expected to negatively impact investor sentiment in the Korean stock market. However, since one of the reasons for the Nasdaq's decline was due to individual stock issues, the extent of the decline in the Korean market is expected to be limited. Nevertheless, as overall concerns about economic slowdown persist, a general contraction in investment is likely to continue.

◆ Seo Sangyoung, Head of Media Content Division at Mirae Asset Securities: "KOSPI Expected to Start Down Around 0.5%"

Today, the Korean stock market is expected to start down by around 0.5%.

Despite the release of solid U.S. economic headline figures the previous day, the Korean market declined amid concerns that the Fed's hawkish monetary policy stance could be prolonged, highlighting recession risks. Additionally, despite recent index declines, the won-dollar exchange rate surged by as much as 26.2 won, reflecting won weakness and triggering foreign selling pressure, which added to the burden. Despite news of China's easing of its zero-COVID policy, related positive effects were not reflected, and overall investor sentiment weakened, with most stocks showing poor performance.

Among these factors, the continued concerns about economic slowdown in the U.S. market and the 2% drop in the Nasdaq are expected to act as factors dampening investor sentiment in the Korean market.

Meanwhile, foreigners made net purchases of $6.06 billion in Taiwan in November, the largest since 2008, and net bought $4.43 billion and $3.04 billion in India and Korea, respectively. These movements were likely influenced by the sharp dollar weakness, individual country issues, and capital outflows from China at the time. However, recently, foreign capital inflows have reversed, leading to continued underperformance in these countries, which is presumed to be due to the heightened global recession concerns.

Considering this, the economic slowdown issue, one of the factors behind the U.S. market decline, is still expected to negatively affect foreign demand. However, if the dollar shows weakness in Asian markets as it did last November, changes in foreign demand are anticipated, so attention should be paid to dollar fluctuations. Due to these factors, the Korean market today is expected to decline by around 0.5%, then show movements influenced by foreign futures trends and dollar fluctuations ahead of the futures and options expiration day.

◆ Han Ji-young, Researcher at Kiwoom Securities: "Negative Impact Inevitable Due to U.S. Market Decline... Attention Needed on Foreigners' Net Purchase Reversal"

The domestic market closed lower on the 6th due to renewed concerns about Fed tightening uncertainty, weakness in growth stocks such as platforms, and profit-taking in Chinese reopening-related stocks. The KOSPI fell 1.1%, and the KOSDAQ dropped 1.9%.

On the 7th, the sharp decline in the U.S. market caused by recession remarks from major global investment banks (IBs) and the dollar's strength are expected to negatively impact the Korean market as well.

Among the recession-related remarks from major IB heads that triggered the expanded U.S. market decline the previous day, Jamie Dimon, CEO of JP Morgan, pessimistically forecasted, "So far, U.S. consumers have been resilient due to excess savings from post-COVID subsidies, but high inflation is eroding real purchasing power, leading to a recession." Goldman Sachs' CEO also expressed a negative outlook, stating, "The economic environment is deteriorating, and corporate investment sentiment is being damaged."

However, it is important to note that most market participants and real economy agents already recognize the high likelihood of a recession in the U.S. and other major countries. Whether a recession occurs is unlikely to become a major uncertainty or a significant negative event that would cause the stock market to retest its lows. The key issue is the severity of the recession; although a shallow recession ending soon is likely, it is appropriate to prepare for increased volatility as the market processes upcoming economic data.

During the day, the November export (market forecast -4.8%) and import (-9.7%) data are expected to influence the market. Although market expectations have been lowered, if the figures are worse than expected, opinions will diverge between "concerns about China's economic slowdown" and "strengthened government stimulus (including further reopening)," leading to increased volatility in large-cap stocks related to China's reopening. Additionally, since the large foreign net purchases of Korea in October-November included demand replacing China runs and funds betting on won strength, attention should be paid to whether a reversal of this type of foreign net buying emerges.