[MarketING] Stock Market Trapped in Uncertainty

KOSPI Continues Decline for Fourth Day
KOSDAQ Rebounds After 5 Days

The KOSPI has continued its decline for the fourth consecutive day. Amid uncertainties such as the US debt ceiling issue, recession concerns, and regional bank worries, global stock markets have generally shown a strong risk-averse sentiment, and the domestic stock market has synchronized with this trend, appearing trapped within a trading range.

KOSPI falls for four days straight... KOSDAQ rebounds after five days

As of 10:15 AM on the 12th, the KOSPI stood at 2,480.19, down 10.81 points (0.43%) from the previous day. The KOSDAQ rose 0.89 points (0.11%) to 825.43. After starting lower, the KOSDAQ rebounded for the first time in five days and is moving in a slightly positive range.

[Image source=Yonhap News]

The reemergence of regional bank crises and recession concerns that affected the US stock market the previous day are also seen as burdens on the domestic stock market. On the 10th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.66%, and the S&P 500 dropped 0.17%, while the Nasdaq Composite closed up 0.18%.

Concerns over regional banks resurfaced, negatively impacting the stock market. PacWest Bancorp, a regional bank in California, announced that deposit withdrawals resumed in the first week of May, with 9.5% of deposits withdrawn. Consequently, PacWest Bancorp's shares fell 22.7%, and other regional banks also declined, contributing to a contraction in investor sentiment.

Ongoing concerns about debt ceiling negotiations also constrained the market's upside. US Treasury Secretary Janet Yellen arrived in Niigata, Japan, to attend the Group of Seven (G7) finance ministers meeting and warned reporters that "a default could cause serious problems for the global economy, and political uncertainty surrounding debt ceiling negotiations alone could lead to a downgrade of the US credit rating." Jamie Dimon, Chairman of JPMorgan Chase, also expressed concern, stating, "The closer we get to default, the greater the volatility in stocks and bonds, which could trigger panic." The International Monetary Fund (IMF) also warned of the severe impact this situation could have on the global economy. IMF spokesperson Julie Kozack said at a briefing, "If the US defaults, it would have very serious effects not only on the US but also on the global economy, including the possibility of increased borrowing costs," and urged, "All parties must urgently resolve this issue."

Sangyoung Seo, a researcher at Mirae Asset Securities, said, "Despite inflation stabilization, the US stock market's weakness due to renewed regional bank concerns and political division over the debt ceiling is a burden on the Korean stock market," adding, "The global financial market is focusing on debt ceiling negotiations between the White House and congressional leaders, increasing risk-averse sentiment, and concerns about a recession are still ongoing, which negatively affects the export-dependent Korean stock market."

Synchronization with global risk-averse sentiment

As the domestic stock market synchronizes with global risk-averse sentiment, the trading range-bound market is expected to continue for the time being.

Yujun Choi, a researcher at Shinhan Investment Corp., said, "As the earnings season enters its later stages, global stock markets are becoming synchronized," adding, "There is a risk-averse sentiment characterized by falling long-term interest rates and slowing stock price momentum." The reason for this risk aversion is that, with the assumption of a pause in tightening, concerns about forming a profit bottom and additional recovery momentum, as well as caution regarding the US economic downturn and debt ceiling negotiations, are at play. Choi added, "US economic downturn and debt ceiling negotiations are limiting the market's upside, so the stock market is likely to continue trading within a range for the time being."

During a range-bound market, it may be beneficial to pay attention to themes that attracted attention earlier in the year. Jihyun Kim, a researcher at Kiwoom Securities, said, "Although the domestic stock market's upside will be limited due to concerns about a US recession and banking sector crisis, growth stocks led by the Nasdaq, which showed a favorable trend amid falling US Treasury yields, will continue to lead individual stock movements," adding, "After the earnings season ends, short-term rotation among neglected sectors and early-year leading themes such as artificial intelligence (AI), robotics, autonomous driving, nuclear power, and hydrogen will continue, sustaining the range-bound market."