[Good Morning Market] US Stocks Rise Despite Shutdown Fears... Korean Market Expected to See Stock-Specific Trading

Foreign Investors Bought 7 Trillion Won, May Sell Before Holidays
"Not a Trend Reversal, Just Risk Management"

Major indices on the US stock market rose for a third consecutive session, fueled by growing expectations of interest rate cuts despite concerns over a temporary federal government shutdown. In contrast, the domestic stock market is expected to see stock-specific trading rather than a clear directional movement in the indices, due to worries over a supply-demand vacuum during the holiday period and caution regarding a potential US government shutdown.

Bad news becomes opportunity... Gains despite shutdown concerns

On September 30 (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 46,397.89, up 0.18% from the previous day, marking an all-time high on a closing basis. The S&P 500 Index also rose 0.41% to 6,688.46. The tech-heavy Nasdaq Composite Index climbed 0.31% to 22,660.01.

Early in the session, the market was generally weak due to heightened caution over the possibility of a US government shutdown. If Congress failed to reach a budget agreement by midnight local time, the US government would enter a shutdown. Federal government employees would be placed on unpaid leave, and US economic indicators would not be released.

However, the market interpreted the potential shutdown as a catalyst for the Federal Reserve to cut interest rates. Analysts explained that a prolonged shutdown would increase downside risks to economic growth and provide the Fed with more room to adopt a dovish stance. As a result, all three major indices on the New York Stock Exchange finished higher for a third consecutive session.

Most technology stocks were weak during the session, but buying by major investment firms to lock in quarterly profits flowed in near the close. Nvidia hit a record high, rising 2.60% on expectations for data center expansion, while shares of artificial intelligence (AI)-related companies such as Micron Technology also performed strongly.

Foreign investor flows in focus before holidays..."Upward momentum remains"

Despite the renewed US artificial intelligence (AI) momentum, the domestic stock market is expected to see stock-specific trading due to concerns over a potential US government shutdown and a supply-demand vacuum during the holidays. The MSCI Korea ETF, which closely tracks the domestic market, fell 0.17%. In contrast, the MSCI Emerging Markets ETF rose 0.39%, and the Philadelphia Semiconductor Index climbed 0.87%.

Analysts note that attention should be paid to foreign investor flows. Last month, foreign investors made net purchases of approximately 7.4 trillion won in the KOSPI market. This is the largest net buying since the 7.8 trillion won recorded in February last year, when the previous administration announced its Value-Up Program. The government's stock market stimulus policies and the memory semiconductor upcycle are cited as key factors.

Foreign investors may still realize profits in sectors where they have been net buyers for five consecutive weeks, such as semiconductors, displays, utilities, and retail/distribution. This is interpreted as a risk management measure ahead of the release of US September employment data and the Federal Open Market Committee (FOMC) minutes during the domestic holiday period.

Han Ji-young, a researcher at Kiwoom Securities, said, "Since the domestic market momentum remains valid, even if there is net selling by foreign investors, it is unlikely to signal a trend reversal. In the past, there have been cases where net selling before a holiday was followed by even larger-scale net buying. Therefore, it would be appropriate to refrain from making negative interpretations about the entire market and instead respond with a wait-and-see approach or by gradually buying leading stocks."