[MarketING] US Inflation Concerns VS China Reopening

KOSPI Starts Higher After One Day Off
Reflecting China's Reopening Optimism

[Image source=Yonhap News]

The KOSPI, which had a day off, started on an upward trend. Despite inflation concerns originating from the U.S., expectations for China's reopening (resumption of economic activities) seem to be injecting upward momentum into the stock market. With the upcoming opening of China's largest political event, the Two Sessions, on the 4th, expectations for stimulus measures and China's reopening are anticipated to strengthen for the time being.

KOSPI Starts Higher on Expectations for China's Reopening

As of 10:30 a.m. on the 2nd, the KOSPI was trading at 2,428.80, up 15.95 points (0.66%) from the previous session. The KOSDAQ rose 2.60 points (0.33%) to 794.20.

Through economic indicators released the previous day, the U.S. is weighed down by inflation concerns, while China benefits from reopening effects. The domestic stock market appears to be responding more to China's reopening effects. Ji-young Han, a researcher at Kiwoom Securities, explained, "During the domestic market holiday, both upward and downward factors appeared in global markets such as the U.S. and China, which may cause market participants to hesitate in betting on the direction of the index. Although negative data and news flow are mixed on the U.S. side, the emergence of positive factors in China could maintain risk appetite and the downside floor in major global markets."

On the 1st (local time), the U.S. Institute for Supply Management (ISM) announced that the manufacturing Purchasing Managers' Index (PMI) for last month was 47.7. This was an improvement from 47.4 the previous month but fell short of the market forecast of 48.0, marking the fourth consecutive month below the 50 threshold. Notably, the price index among the sub-items rose to 51.3 from 44.5, heightening inflation concerns. As a result, the U.S. 10-year Treasury yield surged, touching the 4% range intraday for the first time since November last year. Reflecting rising interest rates and tightening concerns, the U.S. stock market showed mixed performance that day. The Dow Jones Industrial Average rose 0.02% from the previous close, while the S&P 500 and Nasdaq indices fell 0.47% and 0.66%, respectively.

In China, favorable economic indicators were released. The National Bureau of Statistics of China announced that the manufacturing PMI for February rose 2.5 points from the previous month (50.1) to 52.6. This is the highest level since April 2012, when it reached 53.3. The non-manufacturing PMI for February also increased to 56.3 from 54.4 in January.

Sang-young Seo, a researcher at Mirae Asset Securities, said, "Due to the impact of the price index in the U.S. ISM manufacturing index, the 10-year Treasury yield exceeded 4%, leading to selling pressure mainly in tech stocks and continued declines, which is a burden for the Korean stock market. However, the improvement in China's manufacturing and service sector indices, which caused a significant rise in the Chinese stock market, is expected to have a positive effect on the Korean stock market." He added, "Although U.S. Treasury yields surged sharply, the dollar weakened against other currencies due to China's indicator results, which is also favorable."

Expectations for Reopening to Strengthen Ahead of China's Two Sessions

With China's favorable economic indicators further strengthening reopening expectations, attention is expected to focus on China as the country's largest political event, the Two Sessions, opens on the 4th.

A researcher said, "The fact that China's manufacturing indicators recorded a surprise is a factor that reinforces expectations for economic improvement due to reopening, which had somewhat weakened in February. This could positively impact export and corporate profit forecasts for emerging markets, including Korea, providing warmth to the recently unsettled stock market." He added, "As the Two Sessions begin on the 4th and other economic indicators for January and February in China are scheduled to be released, market attention will likely remain focused on related events and data for the time being."

China's economic indicators are expected to continue improving. Min-seok Kang, a researcher at Kyobo Securities, said, "Considering that China's manufacturing and non-manufacturing PMIs rose significantly in February following January, the economic indicators to be released on the 15th of this month are also expected to be favorable."

Market attention is expected to focus on stimulus measures to be announced at the Two Sessions. Researcher Kang predicted, "The Chinese government is likely to aim for a growth rate in the 5% range through not only consumption activation but also continuous investment expansion. Expectations for infrastructure investment through the Two Sessions are expected to benefit industrial and materials sectors."

Researcher Eun-bi Baek of Eugene Investment & Securities explained, "During the Two Sessions, various policies are densely announced, and it is necessary to closely examine the government's policy direction and the intensity of support. Especially this year, as it is the first year to start economic normalization after 'With Corona,' market interest in economic growth targets and policy focus areas is high." She added, "Since the manufacturing index improved significantly in February and the reopening effect is gradually appearing, the government's stimulus intensity may not exceed market expectations. However, the Chinese government will prioritize economic stability this year and focus on consumption recovery and expansion as well as improving market sentiment to achieve growth within stability."