[Good Morning Stock Market] Domestic Market Faces Real Estate PF Concerns Amid Interest Rate Hike Caution

Need to Watch US-China CPI and PPI Data Release
"Must Check Credit Market Movements from Saemaeul Geumgo and GS Construction Reconstruction"

The domestic stock market is expected to find its direction based on movements in the credit market, as concerns over Saemaeul Geumgo instability and GS Construction's reconstruction incident have stirred unease related to real estate project financing (PF), amid caution over the U.S. Federal Reserve's (Fed) interest rate hikes.

Kim Seok-hwan, Researcher at Mirae Asset Securities, says “Need to monitor foreign demand for semiconductor stocks and credit issues”

[Image source=Yonhap News]

Attention should be paid to the market's reaction to foreign demand and credit issues such as Saemaeul Geumgo and GS Construction's reconstruction. Last week, Samsung Electronics announced its earnings, and with absolute figures showing weakness, its stock price dropped by 2.3% in just one day. Foreign investors also took profits on the same day, but given the strong expectations that the semiconductor industry is passing its bottom, it is important to watch closely whether foreign investors will maintain a net buying stance that day. Foreign investors maintained net purchases of Samsung Electronics for 21 trading days last month and bought stocks worth more than 12 trillion won on an annual basis.

In credit issues, the key point is whether PF instability due to Saemaeul Geumgo and GS Construction's poor construction will expand. The alternative delinquency rate of Saemaeul Geumgo has increased from 3.59% at the end of last year to 6.1% at the end of last month. In the credit finance industry, which includes Saemaeul Geumgo and the National Credit Union Federation of Korea, net bond sales exceeding 3 trillion won were recorded for three consecutive trading days, causing market interest rates to rise. Considering that the daily net bond purchases by credit finance companies exceeded 96 billion won over the past year, the increase in net sales is unusual.

GS Construction's stock price plunged 26% this month due to the impact of poor construction, reaching its lowest level since April 2003. The cost of reconstruction due to poor construction is estimated to be around 500 billion won, but considering the decline in brand awareness and government administrative measures expected in mid-August, the loss is likely to be greater. NICE Credit Rating expects that the total amount of payment guarantees related to GS Construction's housing business is 2.9081 trillion won, of which about 44%, or 1.2839 trillion won, will mature this year.

Jo Jun-gi, Researcher at SK Securities, “Check U.S.-China inflation indicators and interest rate hike decisions of major countries”

The global stock market this week is expected to react sensitively to major countries' inflation indicators and U.S. companies' second-quarter earnings. It is also necessary to check credit-related issues.

The key economic indicators to watch are the G2 inflation indicators. China's Consumer Price Index (CPI) and Producer Price Index (PPI) will be announced on the morning of the 10th. The U.S. CPI and PPI are scheduled for the 12th and 13th. The U.S. headline CPI is expected to fall to the 3% range, but unless it triggers a change in the Fed's stance, the market is likely to respond in a limited way. Countries with interest rate decisions this week include South Korea, New Zealand, and Canada. Among them, only Canada is expected to raise its benchmark interest rate by 25 basis points (1bp = 0.01 percentage point).

Corporate second-quarter earnings announcements are also an important factor to watch. Major companies reporting earnings this week include Delta Air Lines, PepsiCo, JP Morgan, Citigroup, and UnitedHealth Group. According to FactSet, the expected earnings per share (EPS) of S&P 500 companies for the second quarter is projected to decline by more than 7% year-on-year. Although expectations for this quarter are not high, since EPS is set to surge from the third quarter, any figures that dampen future earnings expectations could act as negative factors for the market.