[Good Morning Stock Market] "US Stocks Fall Ahead of Jackson Hole... KOSPI Focuses on Pharmaceutical and Bio Sectors"

Ji-Hyun Kim, Kiwoom Securities Researcher

Dealers are working in the dealing room of Hana Bank in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

The Korean stock market is expected to start slightly lower on the 21st. It is likely to be influenced by the overnight decline in the US stock markets. However, due to positive news from Eli Lilly and the healthcare index reaching an all-time high, a rotation-driven market centered on the domestic pharmaceutical and bio sectors is anticipated.

On the 20th (local time), the Dow Jones Industrial Average closed at 48,834.97, down 61.56 points (0.15%) from the previous trading day. The S&P 500 index fell 11.13 points (0.2%) to 5,597.12, and the tech-heavy Nasdaq index dropped 59.83 points (0.33%) to 17,816.94.

In the market, a rate cut in September is considered certain, while short-term variables include the revised nonfarm payroll figures to be released this morning and the interpretation of Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole meeting. Concerns have emerged that the annual benchmark revision preliminary figures will significantly lower the revisions for the past 12 months. There are expectations that the annual increase in nonfarm payroll numbers could be revised down by as little as 300,000 to as much as 1 million.

Accordingly, the biggest scenario expected by the market is that the Fed will cut rates by 100 basis points (1bp = 0.01 percentage points) by the end of December (probability 44.6%). If the cut is larger than expected, it could stimulate profit-taking in the stock market, but the decline may be limited as investors await Chair Powell’s remarks. However, if Powell hints over the weekend at a sharp deterioration in employment or a 50bp cut, recession concerns could spread, leading to a further decline in the stock market.

Despite the weakness in the US stock market, the Korean stock market is expected to continue a rotation-driven market centered on the pharmaceutical and bio sectors due to positive news from Eli Lilly and the healthcare index reaching an all-time high. Ji-hyun Kim, a researcher at Kiwoom Securities, explained, "The reason the KOSPI index’s upper limit is constrained is that during the V-shaped rebound, there has been a distribution of demand from previously strong stocks (top-performing sectors in the first half of this year such as machinery, banks, cosmetics, and automobiles) to undervalued sectors relative to earnings (semiconductors, displays, healthcare, IT hardware)."

Researcher Kim added, "One of the factors limiting the index’s upper bound last week was concerns over SK Hynix’s operating profit growth rate and the semiconductor cycle peaking out. If the expansion of large-cap companies begins to be reflected in the earnings of equipment companies with a time lag, it would satisfy one of the arguments for extending the semiconductor cycle, so it is necessary to pay attention to whether earnings estimates for the semiconductor value chain are revised upward."