[Good Morning Stock Market] Relief over SVB Sale... "KOSPI Expected to Start Flat"

US Stock Market Bank Stocks Rally... Regional Bank Risk Eases
Philadelphia Semiconductor Index Down 1.21%

The domestic stock market is expected to start on a flat note on the 28th and show a box range trading pattern. This is likely influenced by the easing of regional bank risks following the acquisition of Silicon Valley Bank (SVB) by First Citizens Bank.

On the previous day, the U.S. stock market closed mixed as bank stocks rallied on news of the SVB sale. The Dow Jones Industrial Average closed at 32,432.08, up 194.55 points (0.60%) from the previous session. The S&P 500, centered on large-cap stocks, ended the day at 3,977.53, up 6.54 points (0.16%). The tech-heavy Nasdaq index fell 55.12 points (0.47%) to 11,768.84.

[Image source=Reuters Yonhap News]

Sangyoung Seo, head of Mirae Asset Securities, said, "Following the easing of U.S. regional bank risks and the sharp drop in Deutsche Bank's credit default swap (CDS) premiums, the U.S. stock market is generally stable and is expected to start higher, which will have a positive impact on the Korean stock market." He added, "The KOSPI is expected to start on a flat note."

The U.S. Federal Deposit Insurance Corporation (FDIC) announced on the 27th (local time) that First Citizens has agreed to acquire all deposits and loans of SVB for $16.5 billion (approximately 21.4 trillion KRW). Along with this, concerns about the bankruptcy of U.S. regional banks have eased as the possibility of additional liquidity support for First Republic Bank has emerged.

Additionally, unlike the sharp rise in Deutsche Bank's 5-year CDS premiums last Friday, the sharp drop observed the previous day indicated stabilization, which also helped ease concerns in the banking sector. Michael Barr, Vice Chair of the Federal Reserve, emphasized that the SVB issue is an individual bank problem and that the U.S. banking system is sound, which is evaluated to have helped improve overall investor sentiment toward bank stocks.

Furthermore, the easing of banking risks has led to a sharp rise in international oil prices and strength in most sectors such as industrials in the U.S. stock market, which is favorable for the domestic stock market.

However, concerns over U.S.-China tensions have increased due to President Biden’s invocation of the Defense Production Act for printed circuit board (PCB) production. News that the U.S. government will conduct a detailed review of semiconductor subsidies is also negative. As a result, Micron, which is about to announce earnings, fell, causing the Philadelphia Semiconductor Index to drop 1.21%. Considering this, the domestic stock market is expected to start flat and, like the U.S. market, continue with a stock-specific trading pattern ahead of the earnings season.