Looking at the recent environment surrounding the stock market, good things are overlapping. Reflecting this, our stock price has risen by 15% compared to the bottom at the end of September, and stock markets in major countries, including the United States, are also increasing their rise. In particular, in the case of Korea, the rate of increase was lower than that of other countries’ stock markets during the rebound period in July and August, but this time, expectations are high with a higher rate of increase. The best news was US prices. Consumer price inflation in the US in October significantly underperformed market expectations, significantly altering all expectations of Fed tightening. Given that the biggest reason for the decline in the stock market since last year is ‘high prices – high-intensity tightening – liquidity depletion and concerns about economic recession’, the market’s reaction is natural. As a result, 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 viewed as reversing news, as the prospect of a stronger dollar has boosted the flow of money into the US asset market. The US 10-year Treasury bond yield recently fell to 3.8%, which is 0.4 percentage point lower than the high of 4.2%. A few other news are also the reason for this rise in the stock market, raising expectations. First of all, changes are observed in China’s Corona 19 quarantine policy. It is highly likely that the existing policy of complete containment of the outbreak will be somewhat alleviated. Efforts to end the Russian-Ukrainian war are also good news. In particular, the Korean stock market, which is extremely dependent on China’s trade and energy imports, is bound to be more affected by the two news.
However, it is still too early to look at the upward trend of the stock market. The global economy is just passing the price peak, and the effects of austerity on the economy are just beginning. Less than a quarter has passed since the weight of higher interest rates began to weigh on each economic entity. The interest rate burden applied when extending fixed-rate loans that have reached maturity and when interest rates on variable-rate loans are newly set has only recently risen significantly. In other words, the probability of an economic recession and sluggish corporate earnings are still high. In Korea, the downturn in the real estate market is leading to a surge in interest rates for related financial products, and KEPCO bonds are building the corporate bond market. Financial institutions are competing to secure liquidity. There is also a possibility that events that can shake the whole chain will occur, such as the Legoland incident or the failure to exercise call options on hybrid capital securities by some insurance companies. Currently, there are many news in the stock market that will undoubtedly have more expectations than concerns. It’s not that the stock price itself has risen too much. But as stock prices rise, so will the sensitivity to the possibility of a recession and disruptions in the financial system. Just as a drop below KOSPI 2300 was excessive, a rise of more than 10% from now seems excessive. From 2011 to 2016 and 2019, stock prices have been stagnant for a considerable period of time. Therefore, the current uptrend is judged as a movement to the upper end of the box range rather than a trend. Choi Seok-won, SK Securities Knowledge Service Division Head