The South Korean stock market is expected to be directly affected by the two-day Chinese Two Sessions, also known as “Lianghui” (Chinese People’s Political Consultative Conference on the 4th, National People’s Congress on the 5th) starting from the 4th and the U.S. presidential election day, Super Tuesday on the 5th.
The Lianghui has a direct impact on South Korean consumer goods companies. At the same time, the U.S. presidential election is a political event that affects key South Korean industries such as semiconductors, electric cars, and secondary batteries.
◇ The Lianghui is a barometer of the outlook of South Korean consumer goods related to China this year.
The Lianghui, China’s largest annual political event, opens on the 4th. This year, the economy is expected to be the main topic due to difficult domestic economic conditions.
This year marks the 75th anniversary of the founding of the People’s Republic of China and an important year for achieving economic results to meet the goals of the 14th Five-Year Plan (2021-2025). The key schedule of this year’s Lianghui is the government work report by Li Qiang, the Premier of the People’s Republic of China, during the opening ceremony of the National People’s Congress. The economic growth target set by the Chinese government will be announced, and the market expects it to be around 5%.
The current unresolved issues, showing no signs of relief, such as the slowdown in the real estate market, sluggish domestic demand leading to deflation concerns, and local government debt, are holding back China’s economic growth, so the announcement of measures to resolve these issues is a point of interest.
Moon Nam Jung, a researcher at Daishin Securities, identified four key points to watch at this year’s Lianghui: 1. Economic growth target 2. Fiscal deficit target 3. Real estate stimulus measures 4. Technological innovation. He also noted that ” the market’s interpretation after the Lianghui matters.”
◇ U.S. Super Tuesday and Biden vs. Trump
The Super Tuesday election is scheduled for this week in the U.S. The presidential election seems to be a definite race between Trump and Biden.
Jeon Byeong Ha, a researcher at NH Investment & Securities, said, “Given the recent momentum of former President Trump, it is unlikely that Trump’s predominance in the Republican primary will be overturned,” and explained, “Within the Democratic Party, President Biden’s recognition issues and dissatisfaction with his policies are leading to a decline in his approval rating.”
The possibility of former President Trump’s election is seen as a negative signal for companies in countries other than the U.S. His domestic-focused policies are perceived as uncertainties by companies in South Korea, Japan, and other allied nations, and short-term investment sentiment is expected to be dampened.
Hwang Jae Gon, a researcher at Shinhan Investment Corp., said, “Trump has pledged to withdraw from the Paris Agreement, support the oil and gas industry, and abolish the IRA, signaling a drastic change in U.S. energy infrastructure policy.” He emphasized, “He plans to maintain the world’s lowest electricity rates by discarding reckless energy transitions and using traditional energy to foster American industries.”
He also said, “If Trump is elected, there is expected to be a boom in the oil and gas pipeline, LNG terminals, and nuclear power sectors due to regulatory relaxation.” However, he pointed out, “The impact on offshore wind power, which has the highest power generation cost among renewable energies, and CCS and hydrogen blending, which were promoted to be mandatory with traditional power generation, is negative.”
The IRA created through a consensus in Congress, can be changed, rather than abolished, by reducing the scope of tax benefits through stricter guidelines for tax deductions and policy changes introduced through executive orders. This is why South Korean electric auto and secondary battery-related companies are on high alert.
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