[Good Morning Market] Watching Volatility After Trump's Remarks on Raising Tariffs on Korean Automobiles and Pharmaceuticals

Tariff Remarks, Corporate Earnings, and KOSDAQ Surge Create Mixed Upward and Downward Factors
Kiwoom Securities: "National Assembly Approval Issue for Factsheet Should Be Treated as Noise Factor"

As the New York stock market closed higher across the board, it is expected that the domestic stock market on January 27 will see increased volatility due to U.S. President Donald Trump's remarks about raising tariffs on Korean automobiles and pharmaceuticals. Positive factors such as expectations for the earnings season coexist with negative factors, including profit-taking following the sharp surge in the KOSDAQ.

"Trump's remarks pose a burden centered on automobiles... The strategy of increasing the proportion of leading stocks remains valid"

First, the KOSPI is expected to see heightened volatility following President Trump's tariff hike comments. On this day, President Trump stated on his self-created social networking service, Truth Social, "The Korean National Assembly is not implementing the agreement with the United States," and added, "Since the Korean National Assembly has not legislated the historic trade agreement, which is their prerogative, I will raise all reciprocal tariffs on Korea-including those on automobiles, timber, pharmaceuticals, and all other items-from 15% to 25%."

Until now, the Korean government and the ruling party have maintained the stance that the 'joint factsheet' on tariffs and security announced by Korea and the U.S. on November 14 last year is in the form of a memorandum of understanding (MOU), and therefore does not require ratification by the National Assembly. However, the People Power Party has argued that National Assembly approval is necessary, as the matter involves large-scale investments.

Han Ji-young, a researcher at Kiwoom Securities, stated, "Automobiles will be at the center of the burden across the stock market," but also pointed out, "Given that the issue of parliamentary approval is only a matter of time, this reciprocal tariff hike should be regarded as a noise factor with only a limited impact on the market trend."

Kiwoom Securities also raised its annual KOSPI upper target from the previous 5,200 points to 6,000 points. Han explained, "Although there has recently been a withdrawal of funds from the KOSPI, the strategy of increasing the proportion of leading stocks remains valid," adding, "It is also important to note that positive factors such as the upward trend in market profit forecasts, additional buying capacity by foreign and institutional investors, and low valuation burdens remain intact."

"For KOSDAQ, it is necessary to approach while confirming the details of follow-up policies"

Regarding the KOSDAQ, which surged by over 7% the previous day, Han said, "The background for the rise is policy expectations. At an unofficial luncheon meeting on January 23, President Lee Jaemyung reportedly mentioned legislative measures to achieve KOSDAQ 3000," adding, "The measures are said to include liquidity supply linked to digital assets, swift exit of zombie companies, and revitalization of IPOs for key companies in fields such as artificial intelligence (AI) and space."

He analyzed, "In addition to policy expectations, the recent KOSDAQ rally also reflects a catch-up effect after two to three years of relative neglect. While annual gains of around 30% and monthly gains of 7% are far from low returns, the performance gap between KOSPI and KOSDAQ had widened to its largest since 2011. This appears to have stimulated the desire and need for KOSDAQ to catch up, both among market participants and the government."

A trader is working at the New York Stock Exchange. Photo by Reuters Yonhap News Agency

However, there is also a growing desire to realize profits on leading KOSDAQ stocks (those with the largest market capitalization). Han noted, "The KOSDAQ's forward price-to-earnings ratio (PER) has reached a record high of 24 times, increasing valuation pressure," and advised, "It would be wise to increase holdings only after confirming the specificity and feasibility of follow-up policies."

U.S. stock market rises on big tech earnings expectations

Meanwhile, on January 26 (local time) in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 49,412.40, up 313.69 points (0.64%) from the previous trading day. The large-cap S&P 500 Index rose 34.62 points (0.50%) to 6,950.23, and the tech-heavy Nasdaq Composite finished at 23,601.36, up 100.11 points (0.43%).

On this day, the New York stock market opened lower. President Trump had heightened tariff threats against Canada over the weekend, and in Minnesota, another citizen was shot and killed by Immigration and Customs Enforcement (ICE), further fueling concerns about a potential shutdown (temporary government closure).

However, after the market opened, expectations ahead of major big tech (large information technology companies) earnings announcements flowed in, ultimately leading to a strong close. According to financial information provider FactSet, 76% of companies that have reported fourth-quarter results so far have exceeded expectations. Microsoft (MS), Tesla, and Meta are scheduled to announce their earnings on January 28, with Apple following on January 29.

As a result, Apple and Meta shares jumped more than 2%, and MS also rose 1%. However, due to increased uncertainty and concerns about high valuations, large-cap semiconductor stocks faced heavy selling. Micron Technology and AMD both fell by around 3%, and Intel dropped more than 5% after recently issuing a disappointing first-quarter earnings outlook.