[Good Morning Market] "Ongoing Uncertainty Over Tax Reform Proposal... Increased Volatility in Domestic Stocks"

This week, the domestic stock market is expected to remain volatile as controversy over the tax reform proposal continues. The KOSPI, which has dropped below the 3,200 mark, appears unlikely to recover easily in the near future.

According to the securities industry on the 4th, the KOSPI is projected to fluctuate between 3,030 and 3,190 this week. This is due to the ongoing controversy over the tax reform proposal, which was cited as the main cause of last week’s stock market plunge.

On the 1st, employees are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. On this day, the KOSPI closed at 3,119.41, down 126.03 points (3.88%) from the previous session. Photo by Yonhap News

On the 1st, the KOSPI recorded its largest single-day decline of -3.88% since the inauguration of the Lee Jaemyung administration. This was mainly due to growing investor disappointment with the policy after the announcement the previous day of the tax reform proposal, which included a reduction in the separate taxation benefit for dividend income and stricter requirements for major shareholder capital gains tax.

However, there is a possibility that the contents of the tax reform proposal may be revised before it passes the plenary session of the National Assembly scheduled for September, as there are voices of opposition even within the ruling Democratic Party of Korea. The anger of retail investors is also expected to have an impact, as the number of signatures on the National Assembly’s public petition opposing the tax reform proposal surpassed 100,000 over the weekend.

In addition, the domestic stock market is expected to fluctuate depending on the earnings announcements of major domestic and international companies scheduled for this week. In the United States, earnings reports will begin with Palantir Technologies on the 4th, followed by AMD, Amgen, and Rivian on the 5th. In Korea, earnings announcements are scheduled for Hyundai Rotem, LIG Nex1, NAVER, Kakao, and Ecopro BM, among others.

Han Jiyoung, a researcher at Kiwoom Securities, explained, "Although a technical rebound in stock prices is likely as Friday's 3% plunge was excessive, uncertainty over the tax reform proposal is expected to create volatility during the week. In addition, this week will likely see increased differentiation among stocks within sectors depending on individual earnings results."

Whether the New York stock market, which declined last week due to the employment shock, will rebound is also expected to affect the domestic stock market.

On the 1st (local time), all three major New York stock indices fell simultaneously due to the impact of the U.S. employment shock. The Dow Jones Industrial Average closed at 43,588.58, down 542.40 points (-1.23%) from the previous session. The S&P 500 Index ended at 6,238.01, down 101.38 points (-1.60%), and the tech-heavy Nasdaq Composite Index closed at 20,650.13, down 472.32 points (-2.24%) from the previous session.

This was due to the announcement that the U.S. labor market had slowed significantly. According to the employment report released by the U.S. Department of Labor, nonfarm payrolls in July increased by 73,000 compared to the previous month, falling short of the 100,000 forecast by experts surveyed by Dow Jones. The job gains for May and June were also revised downward by a total of 258,000 compared to previous announcements. The unemployment rate rose from 4.1% to 4.2%.