[Good Morning Stock Market] Concerns Over Economic Slowdown Weigh on Nasdaq Decline... Caution Advised for Increased Volatility

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The U.S. stock market continued to decline, mainly led by the Nasdaq, due to negative factors affecting individual companies such as Tesla and Apple. Investment banking firm Bernstein issued a negative report on Tesla's (-3.21%) earnings for this quarter, leading to a drop. Apple (-1.38%) also fell as Morgan Stanley announced that iPhone shipments would be reduced by an additional 3 million units in December following a 6 million unit cut in November, making a decline in Q4 sales inevitable, which was interpreted as a consequence of the economic slowdown. The Dow Jones 30 index closed flat, the Nasdaq fell by -0.51%, and the Standard & Poor's (S&P) 500 index ended down by -0.19%.

With ongoing concerns about the economic slowdown in the U.S. stock market, the weakness in certain stocks such as Tesla due to negative news, leading to a Nasdaq-centered decline, is expected to weigh on the Korean stock market as well. However, considering that the decline factors for individual companies are not new issues but have largely been reflected already, the possibility of widespread concern is limited. On the contrary, excluding these, most stocks saw a rebound buying trend, showing a robust performance, which is a positive factor for investor sentiment.

The open interest in KOSPI 200 futures for March contracts is already more than twice that of the December contracts, indicating that a significant portion of rollover has been completed, so supply and demand issues on the expiration date are expected to be limited, and the market is likely to react more sensitively to the U.S. stock market.

◆ Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: "KOSPI to start with about 0.5% rise... Caution advised on increased volatility of individual stocks"

On the 8th, the Korean stock market is expected to start with about a 0.5% rise and show a robust performance amid increased volatility in individual stocks.

On the previous day, the Korean stock market fell due to the negative impact of the U.S. stock market's sluggish performance amid spreading concerns about an economic slowdown. Additionally, China's import and export statistics falling short of expectations also acted as a factor for economic contraction. Although the market rose during the day on hopes for easing of China's COVID-19 policies, foreign selling pressure continued, adding supply-demand burdens. The announcement of easing COVID-19 policies in China triggered profit-taking sales, causing the Greater China markets to widen their losses, which also weighed on the market. As a result, the KOSPI closed down 0.43%, and the KOSDAQ fell 0.18%.

Among these, the U.S. stock market's decline, centered on the Nasdaq, due to weakness in certain stocks such as Tesla amid economic slowdown concerns, is expected to act as a burden on the Korean stock market as well. However, considering that the decline factors for individual companies are not new issues but have largely been reflected already, the possibility of widespread concern is limited. Excluding these, most stocks saw a rebound buying trend, which is considered a positive factor for investor sentiment.

Furthermore, the possibility of easing wage inflation has emerged, leading to a sharp drop in U.S. Treasury yields and a weakening of the dollar, which are positive factors for the Korean stock market. Meanwhile, with the open interest in KOSPI 200 futures for March contracts already more than twice that of December contracts, a significant portion of rollover has been completed, so supply and demand issues on the expiration date are expected to be limited. This is expected to make the market respond more sensitively to positive developments in the U.S. stock market.

The KOSPI 200 rebalancing issue is also a factor to watch. Although only one stock will be replaced, passive funds' rebalancing due to adjustments in the free float ratio could be significant. Therefore, increased volatility in individual stocks is expected, and caution is advised.