[Good Morning Stock Market] "Positive News from China Outweighs US Negative Factors... KOSPI Expected to Start Higher"

US PMI 47.7...Below Consensus
US 10-Year Treasury Yield Surpasses 4% Intraday
China PMI 52.6...Highest in About 110,000
Rising Expectations for China Reopening
Improved Investment Sentiment Expected for Domestic Export Stocks

On March 2, the first trading day of the month, the Korean stock market is expected to start higher despite disappointing U.S. economic indicators and a sharp rise in the 10-year U.S. Treasury yield, supported by improvements in Chinese economic data. The expanding expectations for China's reopening are analyzed to have a positive impact on investor sentiment.

Traders are conducting business on the floor of the New York Stock Exchange (NYSE) in the United States. (New York Reuters=Yonhap News)

Han Ji-young, a researcher at Kiwoom Securities, stated, "Although downside risks such as weak U.S. stock markets and the burden of rising U.S. interest rates remain, the market is expected to show a bullish trend supported by strengthened reopening expectations due to improved momentum in Chinese manufacturing."

On the previous day (March 1), the Dow Jones Industrial Average on the New York Stock Exchange (NYSE) closed at 32,661.84, up 5.14 points (0.02%) from the previous session. The S&P 500, focused on large-cap stocks, ended down 18.76 points (0.47%) at 3,951.39, while the tech-heavy Nasdaq closed at 11,379.48, down 76.06 points (0.66%).

Negative sensitivity to inflation and the Federal Reserve (Fed) appears to be rising again compared to before. The U.S. Institute for Supply Management (ISM) manufacturing Purchasing Managers' Index (PMI) for February recorded 47.7, which is below the consensus of 48.0. A PMI above 50 indicates economic expansion, while below 50 indicates contraction.

Among the detailed components, the rebound in new orders (January 42.5 → February 47.0) can be seen positively; however, the price index (January 44.5 → February 51.3) rose instead, falling short of the consensus (45.1), indicating an increase in inflation-related manufacturing data, which is a concern.

Key Fed officials, including those from the Atlanta and Minneapolis Federal Reserve Banks, are reinforcing hawkish stances by leaving open the possibility of a 50 basis point rate hike in March or maintaining the benchmark rate in the 5% range through 2024, citing inflation concerns.

As a result, the 10-year U.S. Treasury yield has surged again, touching the 4% range intraday for the first time since November last year. This rapid rise in yields could create a restrictive environment for major stock markets, including Korea and the U.S., where valuation pressures persist.

[Image source=Yonhap News]

Nevertheless, the reason for expecting a higher opening in the KOSPI is the anticipation that China's reopening will accelerate. China announced that its manufacturing PMI for February rose 2.5 points from the previous month (50.1) to 52.6. This is the highest level in about 11 years since April 2012, when it was 53.3.

This is expected to positively influence export and corporate profit forecasts for emerging markets, including Korea. The Chinese National People's Congress and the Chinese People's Political Consultative Conference (collectively known as the Two Sessions) will begin on March 4, during which economic data for January and February will be released. The market is expected to focus on the Two Sessions and economic indicators for the time being.

Korean exports are also showing signs of improvement. February exports fell 7.5% year-on-year, continuing a negative growth trend, but this was better than the previous month (-16.6%) and the consensus (-8.7%). This is also expected to contribute to improved investor sentiment in major domestic export stocks and foreign investor demand conditions.

From an industry perspective, the recent consecutive rallies in secondary battery stocks are a key point to watch. Depending on the results of Tesla's Investor Day, currently underway (as of 7 a.m.), price differentiation among these stocks is expected to emerge.