[Weekly Market Outlook] Market Loses 'Disinflation' Hopes... Focus on China's Lianghui

‘King Dollar’ Nightmare Repeats... Foreigners Net Sell 772 Billion KRW This Week
Next Week Focus on China’s Two Sessions... “Steel and Machinery Sectors to Gain Momentum”

[Asia Economy Reporter Minji Lee] This week (February 20-26), the domestic stock market ended on a downward trend as concerns over high-intensity tightening reignited. The release of economic indicators that could stimulate inflation shattered the market's expectations for disinflation.

[Image source=Yonhap News]

According to the Korea Exchange on the 26th, the KOSPI started the week at 2453.25 and fell 1.21% to 2423.61. Following the U.S. January CPI (Consumer Price Index) exceeding market expectations, the U.S. PMI indicators rebounded in both manufacturing and services sectors, increasing concerns over tightening by the Federal Reserve (Fed). This contrasts with Fed Chair Jerome Powell’s earlier mention of disinflation at the beginning of the month.

Concerns over the strong dollar have also grown again. The dollar index rose about 4% from 101.22 to 105.21 this month, pushing the KRW-USD exchange rate from 1,230 won to the 1,320 won range. Foreign investors, who had maintained net buying since the beginning of the year, recorded net sales of 772.3 billion won this week.

Dollar Strength and Recession Concerns Likely to Increase... China’s Two Sessions Event Seen as a Positive Factor

Tightening concerns are expected to continue next week. The U.S. January Personal Consumption Expenditures (PCE) released last Friday showed a 5.4% increase year-over-year and a 0.6% rise month-over-month, surpassing market expectations. This indicator is crucial for the Fed’s policy rate decisions, and as a result, the U.S. stock market fell more than 1% in a single day last Friday. This contrasts with Fed Chair Jerome Powell’s mention of ‘disinflation’ at the early-month Federal Open Market Committee (FOMC) meeting, which had raised hopes for rate cuts.

In the domestic stock market, concerns about a recession are also expected to grow. This is because the February Korean export figures to be released next week are expected to show a weak performance. Considering that exports until the 20th of this month decreased by 2.3% compared to the same period last year amid ongoing semiconductor weakness, a decline in exports seems inevitable. Kiwoom Securities researcher Yumi Kim said, “Considering that Korea’s exports to China are intermediate goods, for China’s export improvement to occur, U.S. consumption must increase,” adding, “Since the sustainability of U.S. consumer demand is still uncertain, it will take more time for Korea’s exports to China to improve.”

[Image source=Yonhap News]

However, expectations for China’s reopening can be raised further. The annual major political event called the Two Sessions will be held in Beijing on March 4, where China’s national governance policies will be set, and policies for economic stimulus are expected to be announced at this meeting. KB Securities researcher Suhyun Park explained, “This year’s Two Sessions had minimal positive impact from reopening on the economy, so there may be a stronger will to expand fiscal investment,” adding, “For consumption market improvement, a rebound in the real estate market is important, so attention should be paid to changes in real estate policy direction at this Two Sessions.”

By industry, steel and renewable energy sectors are expected to gain strength due to China’s economic stimulus expectations and the detailed announcement of the U.S. IRA (Inflation Reduction Act). NH Investment & Securities researcher Younghwan Kim said, “Considering the recovery of the real estate market and expansion of infrastructure investment, attention should be paid to steel, non-ferrous metals sectors, and consumer goods companies pursuing localization strategies in China,” adding, “Regarding the IRA detailed announcement, it is also worth increasing interest in renewable energy companies that experienced corrections this year.”