International credit rating agency Moody's has downgraded the United States' national credit rating from the highest level of 'Aaa' to 'Aa1', leading to predictions that while the market will not crash, a short-term adjustment is inevitable.
According to the financial investment industry on the 19th, Moody's downgrade of the U.S. credit rating means that all three major international credit rating agencies have assigned the highest rating to the U.S. Standard & Poor's (S&P) downgraded the U.S. rating in 2011, and Fitch did so in 2023.
Historically, downgrades of the U.S. credit rating have led to sharp declines in domestic and international stock markets. The shock was significant because, in 2011, during the eurozone debt crisis, the U.S. credit rating was lowered for the first time. After the downgrade in 2023, it took 73 trading days for U.S. stocks and 101 trading days for Korean stocks to recover.
However, as Moody's had already adjusted the outlook for the U.S. national credit rating to 'negative' earlier, there is a general consensus that the market shock will be less severe. Kim Yong-gu, a researcher at Yuanta Securities Korea, noted, "This downgrade of the U.S. credit rating is characterized by being a well-anticipated negative factor through the downgrades of two credit rating agencies, and considering the high possibility of the Federal Reserve (Fed) cutting rates about twice in the second half, the impact on domestic and international stock markets will be limited to short-term noise."
Lee Kyung-min, a researcher at DAISHIN SECURITIES, projected that the KOSPI index will show a trend towards the 2,700 level after a short-term adjustment around the 2,500 level. He stated, "As global stock markets and the KOSPI index have entered an overheating phase, I expect a phase of digesting sell orders," adding that "it will not be a sharp drop or shock."
The valuation of domestic stocks is also relatively low. When S&P downgraded the U.S. credit rating in 2011, the KOSPI index's price-to-book ratio (PBR) was above 1.1 times, and when Fitch downgraded the U.S. credit rating in 2023, the KOSPI index's PBR was around 0.95 times. Currently, it is at 0.88 times.
Han Ji-young, a researcher at Kiwoom Securities, remarked, "The persistence of the effects from the U.S. credit rating downgrade is not expected to be significant, as several countries, including China, have entered into tariff negotiations with the U.S., making it appropriate to apply the relative downside rigidity of the KOSPI index's valuation as part of the response strategy compared to previous downgrades."
Previously, after S&P and Fitch downgraded the U.S. credit rating, there were triggers for the market to rebound, so it has become important to see when a change in sentiment might occur this time. In 2011, there were approvals for the expansion of the European Financial Stability Facility (EFSF) loan limits and discussions on Greek bailout measures, and in 2023, concerns eased following a dovish Federal Open Market Committee (FOMC).
Hwang Soo-ook, a researcher at MERITZ Securities, stated, "As the earnings announcement period concludes and the market's attention shifts back to macroeconomic indicators, if adjustments materialize, a conservative approach may be necessary until the first FOMC in June and secondarily until July 4 (the 250th anniversary of U.S. independence), when the U.S. Congress aims to establish fiscal policy."