[Good Morning Stock Market] "UK Big Step & Nasdaq Rebound... KOSPI Expected to Start Higher"

[Image source=Yonhap News]

On the 23rd, the Korean stock market is expected to start higher, buoyed by the Nasdaq rebound and Amazon's decision to invest $100 million in artificial intelligence (AI). However, movements are likely to vary depending on repeated hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell, the Philadelphia Semiconductor Index, the won-dollar exchange rate, and foreign investor flows.

On the previous day (local time), the Dow Jones Industrial Average closed at 33,946.71, down 4.81 points (0.01%) from the previous session. The large-cap-focused Standard & Poor's (S&P 500) index rose 16.20 points (0.37%) to 4,318.89, while the tech-heavy Nasdaq index closed up 128.41 points (0.95%) at 13,630.61.

Chairman Powell stated at the Senate Banking Committee monetary policy report that headline inflation is declining, but this is due to energy or food prices, and there is still a long way to go. He also mentioned that if the economy proceeds as expected, two rate hikes would be appropriate, and the Fed is trying to avoid the mistake of tightening too much.

Fed Governor Bowman also expressed a hawkish stance, saying that additional rate hikes are necessary to bring inflation back to the 2% target, indicating that Fed officials continue to show hawkish views even after the June Federal Open Market Committee (FOMC) meeting. Nevertheless, the Nasdaq's rebound despite Powell's hawkish remarks is seen as positive.

The Bank of England (BOE) also took a hawkish step, raising the benchmark interest rate by 50 basis points from 4.5% to 5.0%. This decision exceeded the market consensus of a 25 basis point increase. As a result, the UK's benchmark rate reached its highest level since the 2008 financial crisis. The prolonged high inflation beyond expectations is believed to have driven the 50 basis point hike.

The BOE expects the Consumer Price Index (CPI) to fall significantly when considering energy price changes. However, it left the door open for further tightening if there are signs that inflationary pressures persist.

Despite hawkish moves by major countries, the market judges that the Fed's tightening rationale is weak. Ji-young Han, a researcher at Kiwoom Securities, said, "Despite Powell's hawkish remarks and the 10-year Treasury yield exceeding 3.8% intraday, major large-cap tech stocks successfully rebounded," adding, "The market appears to have already priced in the possibility of a rate hike in July."

Considering the Nasdaq's rebound the previous day, the Korean stock market is also expected to start higher. Researcher Han analyzed, "The pension fund, which had been net selling over 1.2 trillion won cumulatively for nine consecutive trading days, bought nearly 140 billion won yesterday, contributing to the market rebound. Foreign investors showed net selling for four consecutive days but net bought 700 billion won in the futures market."

However, some sectors may have weak upward momentum. Ahead of the 2024 general election, concerns over government regulations have increased recently, likely limiting gains in telecommunications, education, and food and beverage sectors.

Researcher Han explained, "The three major telecom companies were fined about 33.6 billion won for exaggerated 5G advertising, private education companies were identified as interest cartels, and recommendations were made to lower prices of ramen and milk, which will have an impact."

He added, "Attention should be paid to the possibility of rotation trading among undervalued sectors such as electricity and gas, where investment sentiment worsened further due to the electricity bill freeze in Q3; the automobile and parts sectors, which are undergoing continuous adjustments; and aviation, leisure, and textile/apparel sectors, which have fallen excessively due to disappointment over China's reopening."