Wuhan Pneumonia, Impact on Domestic Stock Market... "Volatility Expansion Inevitable for the Time Being"

SARS Also Saw Stock Recovery Before Peak
Fundamentals Intact, Long-Term Opportunity

[Asia Economy Reporter Song Hwajeong] As the novel coronavirus infection (Wuhan pneumonia) rapidly spreads, fear is growing in the domestic stock market. Following a sharp decline in global stock markets the previous day, the domestic stock market, which opened after the Lunar New Year holiday, also failed to avoid weakness. Experts advise a cautious approach as increased volatility in the stock market is inevitable for the time being. However, considering that the stock market recovered before the peak of the past SARS (Severe Acute Respiratory Syndrome) outbreak, some analyses suggest this could actually be a buying opportunity.

On the 28th, the KOSPI opened at 2,192.22, down 2.52% (56.84 points) from the previous trading day, and the KOSDAQ started at 660.79, falling 3.61% (24.78 points). The New York stock market had dropped more than 1% the previous day, and the Japanese and European markets also recorded declines in the 2% range, as fear of the novel coronavirus shook the markets. The domestic stock market, which opened after the Lunar New Year holiday, was unable to escape this trend.

Park Seokjung, a researcher at Shinhan Financial Investment, said, "In a situation where price burdens have intensified due to an unprecedented rally in risky assets, the emergence of negative factors and rising uncertainty are likely to drive an increase in profit-taking sales," adding, "This recent rally was more characterized by price rebounds ahead of earnings improvements, so short-term volatility in the stock market is inevitable due to the Wuhan situation."

Han Daehun, a researcher at SK Securities, also said, "During the Lunar New Year holiday and China's Spring Festival period, the increase in confirmed cases has heightened concerns about the stock market," adding, "Concerns over China's consumption contraction and downward revisions of economic growth rates have grown, and anxiety about reduced trade in global products and services is also rising." Han said, "At a time when price burdens from short-term gains exist, we have encountered a stumbling block," and added, "Short-term rises tend to react more sensitively to negative news than positive news, providing an excuse for profit-taking. The spread of the novel coronavirus will act as a negative factor for the stock market for the time being. The situation should be closely monitored as a short-term correction is highly likely."

Considering the impact of past epidemics on the stock market, it is analyzed that especially in the early stages, increased volatility is inevitable. Researcher Park Seokjung said, "SARS is the only case where a pandemic caused a significant adjustment in stock prices," explaining, "The 2009 H1N1 flu and Ebola outbreaks did not have a major impact on global stock markets, but SARS caused adjustments of more than 10% in China and Korea." He added, "Stock price declines were particularly severe in the early stages when it was difficult to gauge the scale of the damage," and "Afterward, despite daily increases in confirmed cases, stock prices showed signs of recovery."

Park Sanghyun, a researcher at Hi Investment & Securities, said, "During the 2003 SARS outbreak, the domestic economy and stock market were temporarily shocked, but during the 2015 MERS outbreak, the impact on the economy and stock market was limited," analyzing, "This was because, unlike in the past, the spread of the epidemic was not a major risk due to strengthened quarantine measures."

It is expected that as this situation progresses to the later stages, the stock market will move according to fundamentals. Researcher Park Seokjung said, "Considering the possibility of a pandemic, increased volatility in global stock markets is inevitable in the early stages of the pneumonia outbreak, when the impact is difficult to gauge," adding, "However, recalling the experience during SARS, stock prices confirmed their lows before the spread reached its peak, so after a time lag, as related impacts weaken, stock prices will eventually converge to fundamentals."

Since fundamentals are not bad, it is expected that the epidemic will not change the long-term direction of the market. Researcher Han said, "Except for the novel coronavirus, market fundamentals have not been damaged," pointing out, "Although investor sentiment contraction is inevitable, the epidemic will not change the market's direction." He continued, "Since the AIDS outbreak in 1981, there have been 13 epidemics on average, and stock prices have rebounded," arguing, "Since fundamentals have not changed, the current stock price decline is a mid- to long-term buying opportunity."

This content was produced with the assistance of AI translation services.