[MarketING] Hawkish but as Expected Level

KOSPI Rebounds in One Day
Buyers Return After Previous Day's Sharp Drop
February FOMC Minutes Hawkish but as Expected

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI rebounded after a day of decline. A rebound buying spree following the previous day's drop flowed in, and the February U.S. Federal Open Market Committee (FOMC) minutes were hawkish but appeared to be within market expectations. The market is expected to attempt to break through the 2500 level again once inflation stabilization is confirmed through a period of adjustment.

KOSPI Turns Upward in One Day Due to Rebound Buying

As of 10:05 a.m. on the 23rd, the KOSPI was at 2,428.24, up 10.56 points (0.44%) from the previous day. The KOSDAQ fell 4.08 points (0.52%) to 774.43. On this day, the KOSPI's gains slightly narrowed, and the KOSDAQ turned downward.

The February FOMC minutes released overnight were hawkish but did not deviate from expectations, so their impact on the market appears limited. The U.S. stock market closed mixed the previous day. On the 22nd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.26%, the S&P 500 dropped 0.16%, while the Nasdaq rose 0.13%.

Han Ji-young, a researcher at Kiwoom Securities, said, "Like the February FOMC, the recently released minutes also showed a hawkish tone, but it was not enough to exceed the range that the market had already priced in to some extent." She added, "As inferred from the recovery of the U.S. stock market after extreme price volatility following the FOMC minutes release, the minutes were not a material that caused a major shock to the market direction, unlike in January last year."

The released FOMC minutes showed that some members advocated a 50 basis point (bp) increase in February or, if not possible, a 50 bp hike in subsequent meetings. It also emphasized maintaining a restrictive environment to achieve the 2% inflation target. While the recent three-month decline in inflation is welcome, more data is needed to be confident that prices are truly falling.

Han explained, "This content could have triggered additional tightening by the U.S. Federal Reserve (Fed) and caused market anxiety, but the market had already adjusted its terminal rate forecast upward (from 5.25% to 5.5%) after January's employment and inflation surprises, and several price corrections since mid-February have reflected concerns about Fed tightening."

Rebound buying following the previous day's decline is also expected. Kim Seok-hwan, a researcher at Mirae Asset Securities, said, "Rebound buying is expected after the previous day's decline," adding, "Especially, despite the rise in the dollar index and U.S. Treasury yields, the limited decline in the U.S. stock market and the drop in the won-dollar exchange rate suggest that risk asset preference may continue."

Individual Stock Targeting More Effective Than Betting on Declines

As the market is expected to undergo adjustments while confirming economic indicators until the next FOMC, opinions suggest that targeting individual stocks is a more effective strategy than betting on declines.

Han said, "Until the March FOMC, the market atmosphere will not be about betting on upward or downward directions but rather responding retrospectively while checking indicators. Since the market will continue to be influenced by macro factors, a bottom-up approach focusing on individual sectors will remain an effective strategy."

Kim Il-hyeok, a researcher at KB Securities, analyzed, "Although the U.S. economy seems solid, economic activities that were contracted during last December's cold wave may have temporarily shown strength in January and February due to milder weather. Therefore, it is unnecessary to be overly pessimistic based on December's economic indicators, but it is also excessive to expect the strong rebound momentum seen in January to continue." He added, "Rather than betting on declines expecting a downtrend, it is a better strategy to view the adjustment process as a long-term buying opportunity for growth stocks."

If inflation stabilization is confirmed, the market is expected to attempt to break through the 2500 level again. Lee Woong-chan, a researcher at Hi Investment & Securities, said, "It will take more time for stocks to rise further while overcoming the 4% interest rate with economic expectations," adding, "The excessive liquidity rally in small and mid-cap stocks in February will take a break, and if both manufacturing recovery and inflation stabilization are confirmed through a period of adjustment, the market will attempt to break through the 2500 level again."