[Good Morning Market] Heightened US-China Tensions... Will They Hinder the KOSPI Rally?

On October 23, the domestic stock market is expected to see a stock-picking trend centered on individual companies, as it digests heightened tensions between the United States and China and weakness in U.S. semiconductor stocks.

Previously, on October 22 (local time), the New York stock market closed lower across the board as investor sentiment weakened due to the United States reviewing export controls against China and disappointing earnings from major companies such as Netflix. The blue-chip Dow Jones Industrial Average fell by 334.33 points (0.71%) to close at 46,590.41, the large-cap S&P 500 Index dropped by 35.95 points (0.53%) to 6,699.4, and the tech-heavy Nasdaq Index declined by 213.27 points (0.93%) to finish at 22,740.396.

Reuters Yonhap News

Recently, the "everything rally" has paused, as not only technology stocks-which have surged for over two months without a break-but also Bitcoin and gold have entered a correction phase. Despite Tesla achieving its highest-ever quarterly revenue of 28.1 billion dollars, its net profit fell by 37% year-on-year, leading to a drop of more than 3% in after-hours trading.

Lee Sunghoon, a researcher at Kiwoom Securities, stated, "As we enter earnings season, the market will likely focus on distinguishing between companies that can justify their valuations with solid results," adding, "Tesla's after-hours decline could also serve as a reason for short-term profit-taking in the domestic secondary battery sector, which has recently experienced a sharp rally."

The KOSPI is also expected to experience a tug-of-war in supply and demand, especially among large-cap stocks, as it faces short-term resistance near the 3,900 level. There are also expectations that sector rotation will continue depending on the earnings announcements of major companies such as Hyundai Motor and HD Hyundai Electric.

Researcher Lee analyzed, "The KOSPI's 12-month trailing price-to-book ratio (PBR) has now risen to 1.3 times, matching the level seen in March 2021 during the COVID-19 pandemic," and added, "As the KOSPI PBR is re-rating toward its previous high, there may be a period of consolidation at the index level in the short term."

There is also keen interest in market events such as the full-fledged earnings announcements of the U.S. Magnificent 7 (M7) and the Bank of Korea's Monetary Policy Committee meeting. The iM Securities Research Center commented, "Although the Monetary Policy Committee is scheduled for today, expectations for a rate cut in October have virtually disappeared, so it is important to watch whether there will be any hints of a cut in November," adding, "It is also worth paying attention to the upcoming earnings releases from U.S. big tech companies, including Intel."