[Good Morning Stock Market] Market Fluctuates Between Cold and Hot... Spring Will Come Once Short-Term Volatility Ends

Short-term volatility inevitable due to novel coronavirus
However, historically infection concerns do not last long
Rapid resolution possible through strong response by Chinese government and global cooperation

[Image source=EPA Yonhap News]

[Asia Economy Reporter Minwoo Lee] Although short-term volatility in global stock markets is inevitable due to the impact of the novel coronavirus infection, analysis suggests that the medium- to long-term upward trend will be maintained. Unlike the 'trade war' between the United States and China, such natural disasters do not create conflicting interests, so recovery is expected over time. While there may be temporary declines in indicators, it is forecasted that structural defects in the economic system will not be triggered.

◆ Seonghoon Seo, Samsung Securities Researcher= At this point, the influence of the epidemic is being controlled at the lowest level in history. Although the overwhelming power remains inevitable, the economic system's ability to overcome it can also be highly evaluated. The fact that volatility in financial markets during virus outbreaks in recent years was short-lived explains this well. In the same context, concerns about supply chain shocks within China due to the novel coronavirus are premature. Unlike the tariff measures by U.S. President Donald Trump, natural disasters do not form conflicting interests, and recovery over time is expected.

The impact of reduced operating days due to the closure of industrial and commercial zones in China cannot be overlooked. This may lead to a decrease in China's first-quarter Gross Domestic Product (GDP) and exports of neighboring trading countries. However, considering that this issue will not cause a permanent decline in demand, it may manifest as a deferred effect and base effect in the future.

Although the impact of this virus is considerable compared to the Severe Acute Respiratory Syndrome (SARS) in 2003, the Chinese government's response capabilities have also been strengthened. Compared to over 20 years ago, the healthcare infrastructure in the Greater China region has been advanced, and information disclosure is increasingly meeting global standards. The stabilization of China's economic volatility compared to before is also positive. Furthermore, the People's Bank of China, which had been consistently passive, is likely to take a more proactive stance. In fact, on the 3rd, the People's Bank declared it is fully prepared to maintain ample liquidity.

Last month, the U.S. Federal Reserve (Fed) unanimously decided at the first Federal Open Market Committee (FOMC) meeting of the year to keep the benchmark interest rate at the current 1.50?1.75%, which is positive. This can be interpreted as signaling the possibility of a more accommodative policy than before. Although the prolonged closure of the Shanghai Stock Exchange led to deep selling pressure on the domestic stock market, which serves as an alternative, foreign investors' temporary selling is expected to subside around the market opening on this day.

◆ Kyungmin Lee, Daishin Securities Researcher= Recently, the U.S. Treasury yield curve between short- and long-term bonds has converged to zero and even inverted into negative territory during trading on the 30th of last month, fueling recession concerns. This is because China, which holds a significant share in the global economy, is the epicenter. While the U.S. yield curve inversion is certainly a warning sign, considering it is a phenomenon caused by external variables, it is judged that normalization is likely once the fear of the infectious disease subsides.

For the time being, fear of the novel coronavirus is likely to persist, but since the Chinese government has implemented strong containment policies since the 23rd of last month, the increase in confirmed cases is expected to slow by early to mid-February. Major countries worldwide are also cooperating on quarantine efforts and focusing on preventing the spread. During the SARS outbreak, after the Chinese government began management, the rate of increase in infections rapidly slowed within a month.

Therefore, although a short-term contraction in Chinese consumer sentiment and economic instability is inevitable, the actual impact on the global economy is expected to be limited. In particular, since 2000, global infectious disease fears have never changed the direction of the economy. The stock market also continued its existing trend after short-term volatility expansion. Since the outbreak of Acquired Immunodeficiency Syndrome (AIDS) in 1981, there have been 13 infectious disease outbreaks worldwide, but the stock market returns (based on global stock markets) one month, three months, and six months after were 0.44%, 3.08%, and 8.50%, respectively.

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