[Good Morning Stock Market] Impact of US Crash and Impeachment Trial... KOSPI Expected to Start Lower

On the 4th, the KOSPI is expected to start lower due to the sharp decline in the US New York stock market and the impeachment trial verdict of President Yoon Seok-yeol.

In the previous day’s New York stock market, the Dow Jones Industrial Average closed at 40,545.93, down 1,679.39 points (-3.98%) from the previous session. The S&P 500 index fell sharply by 274.45 points (-4.84%) to 5,396.52, and the tech-heavy Nasdaq Composite index dropped 1,050.44 points (-5.97%) to 16,550.61.

The Dow and S&P 500 recorded their largest daily drops since June 2020, while the Nasdaq Composite had its biggest daily decline since March 2020. This marks the largest drop since the COVID-19 pandemic.

The sharp decline in the New York stock market is attributed to the stronger-than-expected reciprocal tariffs imposed by the Donald Trump administration. The Trump administration decided to impose tariffs on countries worldwide, including a 25% tariff on South Korea.

Most market participants had expected either reciprocal tariffs or universal tariffs to be imposed, but the nature of this tariff is analyzed as a mixed type of both, with insufficient grounds for the tariff.

However, some opinions suggest that the current level of reciprocal tariffs is effectively the upper limit, so there is a high probability that tariffs will decrease in the future. This implies that the stock market’s risk of a chain reaction of sharp declines due to additional tariff shocks is limited.

On the previous day, the domestic stock market initially showed a sharp decline due to the Trump reciprocal tariff shock, the plunge in US Nasdaq futures, and large-scale net selling by foreigners amounting to about 1.5 trillion won, but later narrowed the losses supported by rebounds in defense and bio sectors amid perceptions of excessive decline.

On this day, the domestic stock market is expected to start lower due to the impact of the New York stock market plunge. Also, the impeachment trial verdict of President Yoon Seok-yeol is scheduled for 11 a.m., and depending on the verdict, there could be changes in major schedules such as negotiations with Trump and supplementary budget formulation, which is expected to increase volatility.

Han Ji-young, a researcher at Kiwoom Securities, said, “Although this is a period where downward pressure on stock prices is likely in many ways, unlike other stock markets, the domestic market’s risk of further index level downsides is not large.” She analyzed, “As of the previous day, the trailing price-to-book ratio (PBR) of the KOSPI was 0.84 times, reaching near the historical lower band valuation level when the 2400 level was broken at the end of last year.”

She added, “While the reciprocal tariffs may have some negative impact on exports and profits, assuming that future negotiations between countries will lower tariff levels, the phase of bottoming out exports and profits will not be significantly damaged. Therefore, although the PBR may temporarily fall to 0.8 times or below, it is expected to secure downward rigidity by frequently rebounding rather than remaining fixed at that level.”