Looking at the recent environment surrounding the stock market, the good things are stacking up. As a result, our share price is up 15% from its late-September low, and stock markets in major countries, including the US, are also ramping up their rally. Notably, in the case of Korea, the rate of increase was lower than that of other countries’ stock markets during the recovery period in July and August, but expectations are high this time around with a higher rate of increase. The best news was US prices. US consumer price inflation in October significantly underperformed market expectations, significantly altering all expectations of Fed tightening. Given that the main reason for the stock market decline since last year is “high prices – high-intensity squeeze – liquidity depletion and worries about economic recession”, the market reaction is natural. As a result, the pressure on the stock market in the foreign exchange and bond markets also weakened. The dollar has recently lost between 5% and 10% against major currencies. A weaker dollar can be seen as reverse news, as the prospect of a stronger dollar has increased the flow of money into the US asset market. The yield on 10-year US Treasuries also recently fell to 3.8%, or 0.4 percentage points lower than its high of 4.2%. Some other news is also the reason for this stock market rally, raising expectations. First of all, we are observing changes in the Corona 19 quarantine policy in China. It is very likely that the current policy of complete epidemic containment will be somewhat alleviated. Efforts to end the Russo-Ukrainian war are also good news. In particular, the Korean stock market, which is highly dependent on Chinese trade and energy imports, is likely to be more affected by the two news.
However, it is still too early to look at the upward trend in the stock market. The global economy is just passing its price peak and the effects of austerity on the economy are just starting. It has been less than a quarter since the burden of higher interest rates began to weigh on every economic entity. The interest rate burden applied when expiring fixed-rate loans are extended and when interest rates on floating-rate loans are fixed again has only recently increased significantly. In other words, the likelihood of an economic downturn and slow corporate earnings is still high. In Korea, the downturn in the housing market is leading to an increase in interest rates for related financial products and KEPCO bonds are building the corporate bond market. Financial institutions compete for liquidity. There is also the possibility of events that could shake the entire supply chain, such as the Legoland accident or the failure of some insurance companies to exercise call options on hybrid equities. Currently, there are many new stocks that will undoubtedly have more expectations than worries. It’s not that the stock price itself has gone up too much. But as stock prices rise, so will sensitivity to the possibility of a recession and disruption in the financial system. Just as a drop below KOSPI 2300 was too much, a rise of more than 10% from now seems too much. From 2011 to 2016 and 2019, stock prices stagnated for a considerable amount of time. Therefore, the current uptrend is judged as a move towards the upper end of the box range rather than a trend. Choi Seok-won, head of SK Securities Knowledge Service division
