The flow of the domestic stock market last week (April 21-25) can be summed up in one word: tariff.
The KOSPI index, which had been fluctuating around without a clear direction, recovered above 2500 during the week after U.S. President Donald Trump's remarks on progress in trade negotiations. However, ahead of the Korea-U.S. tariff negotiations on the 25th, investors leaned towards a "wait and see" approach. Despite surprise earnings reports from major listed companies, most stocks did not gain upward momentum, except for the shipbuilding and defense sectors. Even positive earnings news could not overcome the external factor of tariff risk.
The low growth shock of our economy confirmed by last week's indicators has also worsened investor sentiment. The Bank of Korea announced that the gross domestic product (GDP) growth rate for the first quarter (January-March) of this year recorded a negative (-)0.2%. For four consecutive quarters, the GDP growth rate has been below 0.1%. Even though the impact of tariffs from the U.S. has not yet been reflected, the analysis that our economy has already fallen into a low growth trap has dampened investor sentiment. However, on Friday (the 25th), the KOSPI rose above 2540 as concerns over tariffs eased with the positive atmosphere surrounding the Korea-U.S. tariff negotiations.
The results of the Korea-U.S. 2+2 negotiations, which investors had been paying attention to, have been positive. Our government stated on the 25th that it formed a consensus with the U.S. on a "July package" aimed at eliminating tariffs until July 8, when the 90-day tariff freeze ends, during the first tariff negotiations with the U.S. The U.S. side noted that Korea had brought its best proposal.
U.S. Treasury Secretary Scott Bessent said, "An understanding agreement regarding the framework of negotiations will be concluded as early as this week." Expectations for a swift agreement in negotiations with Korea have emerged, as the U.S. previously concluded the Terms of Reference (TOR) for a bilateral trade agreement with India.
The securities industry expects that the stock market will rise thanks to this agreement. However, the extent of the rise is not expected to be large. Huang Jun-ho, a researcher at Sangsangin Investment & Securities, noted, "Although the U.S. administration's America First policy has somewhat eased, the domestic stock market will show a limited upward trend due to concerns about domestic and external macroeconomic indicators."
Lee Kyung-min, a researcher at DAISHIN SECURITIES, also noted, "The unpredictable pressure from Trump on the Federal Reserve and concerns about policy reversal still pose factors that delay the recovery of investor sentiment," but he added, "Supported by the economic recovery in non-U.S. regions, the KOSPI's upward trend could continue." Additionally, he assessed that the KOSPI's forward price-to-earnings ratio (PER) is 8.74 times and its price-to-book ratio (PBR) is 0.81 times, indicating high valuation appeal.
This week, attention should be paid to the tug-of-war negotiations between the U.S. and China. President Trump hinted on the 24th that he could significantly lower tariffs on China. He mentioned that the decision on reducing tariffs on China could be made "within 2-3 weeks," specifying a time frame unlike before. Currently, the Trump administration has imposed a tariff rate of 145% on China, while China has retaliated with a 125% tariff rate.
However, there are observations that it may take some time for both countries to reach an agreement. President Trump has repeatedly stated last week, "We are discussing the tariff issues with China," but China has countered this by calling it "fake news." There have also been demands that the U.S. should first eliminate the high tariffs it unilaterally imposed for improvements in relations. Currently, President Trump has stated that he will decide on tariffs unilaterally within 2-3 weeks if China does not respond to negotiations.
Famous analyst from Mirae Asset Securities analyzed, "For China, which is highly dependent on exports, the U.S. market is still important," and concluded that there are sufficient motivations for the struggling Chinese market to engage in negotiations. In fact, the proportion of exports to the U.S. has decreased from 19.2% in 2018 to 14.6%, but the share of indirect export routes like Vietnam and Mexico has increased.
Meanwhile, the U.S. is facing the release of key economic indicators that could bolster support for interest rate cuts. The most important indicators include GDP for the first quarter and employment figures for April. As economic indicators worsen, the monetary policy stance of the Federal Reserve (Fed) may change. Previously, Federal Reserve Board member Christopher Waller mentioned, "If a rise in tariffs leads to an increase in the unemployment rate, I would support a rate cut."
Lee Kyung-min, a researcher at DAISHIN SECURITIES, stated, "(From this indicator) we can confirm that expected inflation is not transferring into actual price indicators," and noted, "Since the GDP data precedes the tariff imposition, the Fed is likely to take a wait-and-see approach, but as concerns about the recession ease, Trump's pressure for rate cuts may intensify again."
Additionally, he explained, "In terms of employment, the pre-demand will continue until April, so there is a limited possibility of a rapid contraction, but the trend of qualitative deterioration remains valid." If employment slowdown is confirmed, the downward pressure on the stock market is likely to increase.
This week, major corporations are preparing to announce their earnings. Depending on whether their earnings meet market expectations and their future earnings outlook, stock price movements may diverge.
However, recent cases suggest that earnings announcements (earnings surprises) that are better than expected do not lead to significant increases in stock prices, indicating a diminished impact of earnings on stock prices. Ahead of the tariffs imposed by the U.S., early orders generated in the first quarter led to earnings surprises, which investors apparently interpreted negatively.
In the U.S., major technology companies such as Microsoft, Apple, Amazon, and Meta, as well as consumer goods companies like Coca-Cola and General Motors, are scheduled to announce their earnings. Considering that Alphabet recorded an earnings surprise in advertising sector growth, there are expectations that stock market rises could result from earnings growth among similar companies such as Meta and Amazon.
In Korea, Samsung Electronics, Hanwha Aerospace, Hanwha Ocean, LG CHEM, KRAFTON, HYBE, Hanwha Systems, SK Innovation, and Doosan Enerbility are also expected to announce their earnings one after another. We will be able to confirm the earnings and expected outlook of sectors like semiconductors, defense, and software.