With Joe Biden's Presidential Candidacy Withdrawal
Short-Term Volatility Period Expected to Continue
Earnings Issues Could End the Correction Phase
If Trump Trade Weakens,
KOSPI May Attempt to Break 2800 Level
Experts predicted that short-term volatility in the domestic stock market could continue for a while due to the issue of Joe Biden withdrawing from the U.S. presidential race. Although the U.S.-originated variable will affect domestic short-term supply-demand factors and investor sentiment, the duration is expected to be short, and some opinions suggest that such short-term fluctuations could actually present trading opportunities. Additionally, as the Q2 corporate earnings season kicks off in earnest, there are forecasts that volatility in the domestic stock market related to the U.S. presidential election may decrease.
As of 9:40 a.m. on the 22nd, the KOSPI stood at 2,768.14, down 27.32 points (-0.98%) from the previous trading day. The index opened at 2,790.99, down 4.47 points (0.16%), and has been fluctuating since. Foreigners and institutions are net sellers of 55.3 billion KRW and 17.4 billion KRW respectively, while individual investors are the sole net buyers with 95.2 billion KRW. At the same time, the KOSDAQ was at 816.80, down 11.92 points (-1.44%) from the previous day.
Last week (15th?19th), the KOSPI closed at 2,795.46, down 61.54 points (2.15%) for the week. The domestic stock market showed a consistently weak trend due to the impact of the attack on U.S. presidential candidate Trump and weakness in U.S. semiconductor stocks, ultimately closing below the 2,800 mark.
In the securities industry, it was advised to approach the market defensively in anticipation of increased volatility just before the U.S. presidential election. Kim Dae-jun, a researcher at Korea Investment & Securities, suggested, "Generally, the stock market tends to experience increased volatility just before the U.S. presidential election, and we are currently in that process. A defensive approach to the market seems necessary for the time being."
Han Ji-young, a researcher at Kiwoom Securities, analyzed, "There is a possibility of returning from the 'Trump trading' phase, which assumed Trump's victory, back to the previous election phase where 'it is uncertain who will win.'"
There were also opinions that the impact of the U.S. presidential election issue on the domestic stock market would be limited. Although the Democratic candidate was replaced, the likelihood of the election outcome being overturned is low, so short-term volatility is expected to continue but not for a long time.
Jo Jun-gi, a researcher at SK Securities, said, "The emergence of Kamala Harris as a candidate is unlikely to shake the election landscape, and Trump's chances of winning remain much higher. Accordingly, short-term volatility is likely to continue, and the period during which Trump's remarks have a significant impact on the stock market may persist." However, Jo added, "Although the period during which Trump's remarks significantly influence the stock market may continue, the time during which it acts as a reason to pull the market down will not be long."
Lee Kyung-min, head of FICC Research at Daishin Securities, stated, "I believe that the influence of political issues and events on the trends and direction of global financial markets and stock markets is limited. While it is necessary to keep in mind the uncertainties related to various political issues and events until the U.S. presidential election in November, as well as the fluctuations depending on the election results, fundamentals are more important."
The securities industry pointed to the earnings season as a factor that could end the recent correction phase. Researcher Jo Jun-gi said, "The factor that can quickly end the current correction phase is the earnings season, which will become more active this week." Lee Kyung-min also forecasted, "With the arrival of the full-fledged Q2 earnings season, we expect a strong rebound that overcomes last week's sharp decline."
Opinions on the Trump trade in the securities industry were divided. The Trump trade refers to the phenomenon where assets related to candidate Trump show strength.
Kim Dae-jun of Korea Investment & Securities noted, "Last week in the U.S., the decline was significant in previously leading sectors such as information technology (IT) and communication, but sectors that could be considered beneficiaries of the Republican Party, such as energy, finance, and industrials, performed well. The same was true in Korea. Specifically, defense, construction, shipbuilding, and other industrial sectors, as well as defensive sectors like telecommunications, food and beverages, and healthcare, showed good performance."
Researcher Jo Jun-gi said, "In a situation where Trump is highly favored, the beneficiary play is likely to remain valid until the election," citing shipbuilding, pharmaceuticals & bio, and steel & non-ferrous metals as expected beneficiary sectors.
With President Joe Biden's announcement of his decision not to seek re-election, weakening the Trump trade, there are also forecasts that the KOSPI will break through the 2,800 level again. It is suggested that semiconductor, automobile, and secondary battery sectors, which were the victims of the Trump trade in the domestic market, may attempt a rebound and push the KOSPI upward.
Lee Kyung-min said, "Going forward, the KOSPI will attempt to break through the 2,900 level based on support around the 2,800 level," and identified key sectors as semiconductor and automobile growth stocks (secondary batteries + internet), which benefit from Bidenomics and were negatively affected by Trumponomics.
The virtual asset market is expected to benefit as Trump moves closer to re-election. Hi Investment & Securities stated, "As Trump's election becomes more likely, the virtual asset market is emerging as a beneficiary theme of Trump. Accordingly, contrary to the recent sharp decline in the stock market, Bitcoin has shown a clear rebound trend, surpassing the $67,000 level over the weekend."
Meanwhile, the won-dollar exchange rate opened at 1,388.0 won, down 2.2 won from the previous trading day (1,390.2 won). At this time, it is recording 1,388.20 won, down 3.30 won.
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