Despite the Abolition of the Financial Investment Tax, Market Remains 'Cautious' Amid US Presidential Election Uncertainty

Stock Market Turns Down in One Day
Sharp Rise on Previous Day Due to Possible Abolition of Financial Investment Tax
Impact of Growing Concerns Over US Presidential Election
Expectations to Recover KOSDAQ's Relative Weakness

Amid growing caution ahead of the US presidential election, the KOSPI opened lower on the 5th. Although it surged significantly the previous day on the possibility of abolishing the financial investment income tax (FIIT), it reversed to a downward trend within a day. This is interpreted as a result of heightened caution ahead of the US presidential election and the Federal Open Market Committee (FOMC) meeting. Considering the abolition of FIIT and interest rate cuts, there are forecasts that the KOSDAQ will recover from its previous sluggishness.

[Image source=Yonhap News]

As of 9:40 AM on the 5th, the KOSPI recorded 2,569.19, down 19.78 points (0.76%) from the previous session. The KOSDAQ was down 1.30 points (0.17%) at 752.78. The KOSDAQ started off declining, then turned upward, but fell again, fluctuating around the flat zone in the early trading hours.

By buyer type, foreigners and institutions are selling, while individuals are buying, helping to defend against the index's decline.

Although the possibility of FIIT abolition was highlighted the previous day, leading to an upward trend, the US stock market fell amid uncertainty over the US presidential election, causing the domestic market to weaken. On the 4th (local time), the US stock market closed lower as cautious sentiment deepened ahead of the US presidential election, with a tight race expected between the two candidates, leading to profit-taking sales mainly in large tech stocks. The Dow Jones Industrial Average fell 0.61%, the S&P 500 dropped 0.28%, and the Nasdaq Composite declined 0.33%.

Han Ji-young, a researcher at Kiwoom Securities, said, "Growth stocks and small- and mid-cap stocks may show strength due to expectations of FIIT abolition and US interest rate cuts, but the heightened caution surrounding the US presidential election will likely limit the index's rise."

Volatility related to the US presidential election is expected to persist for some time. Jo Jun-gi, a researcher at SK Securities, explained, "The US presidential vote counting is scheduled to start on the morning of the 6th Korean time, but considering the current close race, it may take a bit longer than expected to get a clear result. Until the result is confirmed, high volatility will continue." He added that a favorable stock price trend can be expected after the results are announced. Jo said, "Historically, stock prices tended to pause before the election and then show a favorable trend after the results were confirmed. Although the past may not necessarily repeat itself, since the market has already factored in the Trump trade strongly, the pause in stock prices means that a rise due to uncertainty resolution can be expected regardless of the winner."

In particular, attention should be paid to the KOSDAQ's trend as factors that have suppressed it so far are expected to be resolved. The KOSDAQ has fallen 12.9% this year, while the KOSPI dropped 2.5% during the same period. Ha In-hwan, a researcher at KB Securities, analyzed, "Concerns about the introduction of FIIT and delayed interest rate cuts caused the KOSDAQ's sluggishness. Since the KOSDAQ is centered on growth stocks, it tends to perform well when market interest rates fall. However, despite the Federal Reserve's rate cuts, the 10-year US Treasury yield rose to 4.3%, limiting the KOSDAQ's rise." He added, "With the announcement of Lee Jae-myung, leader of the Democratic Party of Korea, agreeing to abolish FIIT, concerns about the tax may ease, and the delayed rate cuts and still-high market interest rates are expected to gradually improve."

On the day, the won-dollar exchange rate opened at 1,375.2 won, up 4.3 won from the previous closing price. Due to uncertainty over the US presidential election, virtual assets also showed weakness. According to the virtual asset market tracking site CoinMarketCap, as of 7:40 AM, Bitcoin was trading at $67,790, down 1.57% from the previous day. At the same time, Ethereum recorded $2,399, down 2.52%.