[MarketING] KOSPI Falls Below 2570 Amid Export Slump

KOSPI Falls for Two Consecutive Days
Burdened by Weak Export Performance

The KOSPI fell for the second consecutive day, dropping below the 2570 level. Concerns over the economy due to sluggish exports weighed on the stock market. The KOSDAQ rose for the third consecutive day, recovering above the 860 level, supported by pharmaceutical and bio stocks that showed strength following the government's support policy announcement.

KOSPI Falls for Two Consecutive Days... Drops Below 2570

On the 1st, the KOSPI closed at 2569.17, down 7.95 points (0.31%) from the previous day. The KOSDAQ ended the session at 863.78, up 6.84 points (0.80%).

[Image source=Yonhap News]

Institutions led the decline in the index. On that day, institutions sold a net 382.6 billion KRW in the KOSPI market and 15 billion KRW in the KOSDAQ market. Institutions showed a selling bias in the KOSPI market for six consecutive days, appearing to realize profits. Foreigners sold a net 8.3 billion KRW in the KOSPI market but bought a net 55.7 billion KRW in the KOSDAQ market. Individuals purchased 356.8 billion KRW in the KOSPI market but sold 26.2 billion KRW in the KOSDAQ market.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The domestic export indicators for May were sluggish, and the US stock market also declined due to profit-taking mainly in tech stocks the previous day, which weighed on the KOSPI. However, the KOSDAQ maintained its upward trend due to strength in the pharmaceutical and bio sectors."

According to the May export-import trends announced by the Ministry of Trade, Industry and Energy on that day, May exports amounted to 52.24 billion USD, down 15.2% compared to the same month last year. Monthly exports have declined for eight consecutive months. The semiconductor slump led to the overall export downturn. Semiconductor exports in May were 7.37 billion USD, down 36.2% year-on-year. The semiconductor export growth rate has been declining for ten consecutive months since August last year. The trade balance in May recorded a deficit of 2.1 billion USD, continuing a 15-month consecutive deficit streak since March last year. This is the longest continuous trade deficit in 27 years since the 29-month deficit from January 1995 to May 1997.

Although export sluggishness continues, there are opinions that the bottom has already been passed. Jung Sung-tae, a researcher at Samsung Securities, said, "Considering the narrowing decline in semiconductor exports, the rebound in daily average exports, and the gradual improvement in the global manufacturing Purchasing Managers' Index (PMI), we believe that Korean exports have already passed the bottom. Based on this, we revise the export forecast for the second half of this year from -7.0% to -3.0%, and the forecast for next year from 5.5% to 8.0%."

However, the slowdown in the Chinese economy and US-China conflicts are expected to be variables for export recovery. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "If the partial benefits from the normalization of the Chinese economy in the second half, the recovery of semiconductor export prices due to semiconductor inventory adjustments, and the possibility of a soft landing of the US economy coincide, it is possible to see an improvement in domestic export conditions and a trade surplus turnaround from the end of the third quarter or early fourth quarter, and the export decline could gradually narrow from the third quarter. However, uncertainties about the normalization of the Chinese economy and risks from US-China conflicts will be variables that determine the timing and extent of export recovery."

Pharmaceutical and Bio Stocks Gain Momentum on Government Support Measures

The rise in the KOSDAQ on that day was driven by pharmaceutical and bio stocks buoyed by expectations of government support policies.

Celltrion Healthcare closed at 76,700 KRW, up 3.65% from the previous day, while HLB rose 2.30%, Celltrion Pharm 2.35%, and Alteogen 4.55%.

Researcher Kim said, "The announcement of government support policies such as the establishment of digital bio infrastructure, expansion of tax credits for bio companies, and venture promotion reflected expectations, leading to strength in pharmaceutical and bio stocks."

On that day, the government announced the 'Plan to Foster Advanced Industry Global Clusters' and decided to include core technologies related to biopharmaceuticals such as animal cell culture and purification technology as national strategic technologies, offering up to a 35% tax credit on facility investments. The tax credit rates are 15% for large and medium-sized enterprises and 25% for small and medium-sized enterprises. Additionally, an extra 10% temporary investment tax credit will be granted this year only on the increase in investment compared to the average annual investment over the past three years.

Along with tax benefits, the government plans to raise a mega fund of 1 trillion KRW by 2025 to invest across the entire cycle of innovative biopharmaceuticals, including research and development (R&D), clinical trials, exports, and mergers and acquisitions (M&A). Among this, the 'Global Open Innovation Fund,' which focuses on joint research and technology commercialization between domestic and overseas pharmaceutical companies and research institutes, will be established with a scale of over 200 billion KRW.