[Good Morning Stock Market] After Wuhan Pneumonia, US Presidential Election... Volatility May Continue to Increase

US Fed Holds Interest Rates Steady... Uncertainty Remains
Strong Progressive Bernie Sanders' Lead in Presidential Race Also Worries Market

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The uncertainty and volatility triggered by the 'Wuhan Pneumonia (Novel Coronavirus)' are expected to persist for some time. The U.S. Federal Reserve's (Fed) decision to maintain the benchmark interest rate serves as a support, but concerns remain as the virus continues to spread and a progressive candidate is leading in polls in the intensifying U.S. presidential race.

◆ Haedoon Han, SK Securities Researcher = At the first Federal Open Market Committee (FOMC) meeting of the year, the U.S. Fed unanimously decided to keep the benchmark interest rate at the current 1.50?1.75%. It also announced it would continue the short-term liquidity supply program and, in particular, extend the repurchase agreement (RP) operations until April. This met market expectations and instilled confidence that accommodative monetary policy would continue. At a time when the novel coronavirus, starting in China, is spreading worldwide as an unexpected variable, this direction provides a solid support.

However, the possibility of continued short-term volatility remains high. The number of confirmed novel coronavirus cases continues to rise. This raises significant concerns that reduced consumption in China could lead to economic slowdown, which may spread to the global economy. In the case of such unforeseen epidemics, psychological indicators are crucial for identifying turning points, but investor anxiety remains high.

The early atmosphere of the U.S. presidential race, which is unfavorable to the market, is also a negative factor. The U.S. presidential race will officially begin next week with the Iowa caucuses, and Senator Bernie Sanders, who has a strong progressive stance, is leading in the polls. Senator Sanders ranked first in New Hampshire following Iowa. Although Joe Biden, the Republican candidate, leads in national support, the fact that a candidate less friendly to the market is leading in the polls is certainly burdensome. Given the prevailing fear sentiment, the possibility of increased short-term volatility remains high. However, since the stock price uptrend remains valid, the current period of increased volatility is still viewed as a buying opportunity.

◆ Jaeseon Lee, Hana Financial Investment Researcher = Emerging market stocks closed lower this week amid growing concerns over Wuhan Pneumonia. The countries with the largest declines were those with confirmed cases: Hong Kong (10 cases), Taiwan (8 cases), and South Korea (6 cases). Among these, increased gold purchases by central banks have emerged as a major trend in the commodities market. According to the World Gold Council, global central banks purchased 650.3 tons of gold last year, the second-largest amount since the gold standard was abolished in 1917. Notably, emerging market central banks seeking to reduce their U.S. Treasury holdings showed prominent buying activity. The Russian central bank, which purchased 158.1 tons, is a representative example, followed by Turkey (161.7 tons) and China (95.8 tons).

This phenomenon is quite different from the past when emerging market central banks held dollars as foreign exchange reserves. It suggests that the status of the dollar, which has served as the key currency, is gradually declining. Emerging market central banks are expected to increase their gold holdings further. The gold holdings of emerging market central banks such as Russia (20.1%), India (6.6%), and China (2.7%) remain lower compared to advanced countries like the U.S. (75.8%), Germany (71.7%), and Italy (67.4%). The accommodative monetary stance of central banks indicates that gold prices are likely to show better returns compared to other commodities this year. Attention should be paid to the upcoming monetary policy meetings of major emerging countries next week. Both the Indian and Brazilian central banks are likely to keep interest rates steady considering the increased inflationary pressures.

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