[Good Morning Stock Market] "US Tech Stocks Lead Decline... Monitoring Foreign Investor Trends on Futures and Options Expiration Day"

Last night, the U.S. stock market closed mixed as Treasury yields rose ahead of the Federal Reserve's (Fed) upcoming monetary policy meeting next week, leading to selling pressure mainly on large technology stocks.

On the 7th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,665.02, up 0.27% (91.74 points) from the previous session. The Standard & Poor's (S&P) 500 index fell 0.38% (16.33 points) to 4,267.52, while the Nasdaq index closed down 1.29% (171.52 points) at 13,104.90.

Tesla (1.47%) continued its upward trend following news that it would receive the full subsidy under the Inflation Reduction Act (IRA). On the other hand, Rivian (-4.69%) declined after reports that it would only receive half of the subsidy due to incomplete documentation for battery material production. Energy sector stocks such as ExxonMobil (2.24%) and Chevron (2.59%) rose on the back of strong international oil prices. Large tech stocks including Alphabet (-3.78%), Microsoft (-3.09%), Amazon (-4.25%), Apple (-0.78%), Meta Platforms (-2.77%), as well as semiconductor and AI-related stocks like Nvidia (-3.02%) and AMD (-5.15%) fell due to profit-taking.

[Image source=EPA Yonhap News]

Seo Sang-young, Head of Media Content Division at Mirae Asset Securities: “Volatility to Increase Depending on Foreign Investor Flows”

Today, the KOSPI is expected to start down about 0.3%.

Yesterday, the Korean stock market rose as foreign investors' net buying of futures increased amid a strong Korean won. However, similar to the U.S. market, profit-taking emerged, resulting in a slight gain followed by a stock-specific market. Notably, foreign investors sold semiconductor stocks, which had driven the rally, while the secondary battery sector showed clear strength on news of full subsidy support for Tesla’s Model 3. Specifically, foreign investors sold 40.3 billion KRW but net bought 134.4 billion KRW of LG Energy Solution. The KOSPI rose only 0.01%, but the KOSDAQ gained 1.20%, led by the secondary battery sector.

The surprise rate hike by the Bank of Canada has injected anxiety ahead of the June Federal Open Market Committee (FOMC) meeting, causing the U.S. market to fall, especially in tech stocks, which poses a burden on the Korean market. In particular, concerns over Fed monetary policy are likely to expand profit-taking that had been ongoing in some sectors, making selling pressure on stocks that have driven the Korean market inevitable.

Given the futures and options expiration, attention should be paid to foreign futures trends. Since financial investors with arbitrage tendencies have net bought over 700 billion KRW this month, profit-taking pressure may increase today. It is important to see whether foreign investors will respond by expanding buying or, like in the U.S. market, by selling for profit-taking. Considering this, the Korean market is expected to start down about 0.3%, with volatility expanding depending on foreign investor flows.

[Image source=Reuters Yonhap News]

Han Ji-young, Researcher at Kiwoom Securities: “Weakness Pressure Expected Mainly on Domestic IT and Growth Stocks”

Today, external pressure factors such as the Bank of Canada (BOC) resuming rate hikes, a simultaneous decline in U.S. AI stocks, and a rise in the won-dollar exchange rate are expected to exert downward pressure mainly on domestic IT and growth stocks. With the futures and options simultaneous expiration day also scheduled, volatility in foreign and institutional investors’ spot and futures supply and demand is expected to increase during the late trading session and the closing call auction.

Meanwhile, mixed results in China’s May export and import data have raised growing concerns about delayed economic momentum recovery. This sluggishness in China’s economy is expected to weigh on the Korean economy and stock market, which are highly dependent on China. According to the Korea International Trade Association, China accounted for 58.5% of Korea’s total export decline in Q4 2022 and 57.5% in Q1 2023, indicating that weak exports to China have had more than half the impact on overall export weakness.

However, since Korea’s export dependence on China is gradually decreasing over time, there is no need to be pessimistic. The share of China in Korea’s total exports has been declining annually, while that of the U.S. has been increasing. Also, although cumulative exports to China in Q1 2023 recorded a decrease of -29.8%, the combined export growth rate to other regions including the U.S. was -6.8%, highlighting that exports outside China have been relatively less poor.