[Good Morning Stock Market] KOSPI Spreads 'Novel Coronavirus' Fear... When Will Short-Term Volatility End?

On the 3rd, KOSPI opened at 2086.61, down 32.40 points (1.53%) from the previous trading day due to concerns over the spread of the novel coronavirus. Employees are working in the dealing room of Hana Bank in Jung-gu, Seoul. On the same day, the won-dollar exchange rate started trading at 1197.0 won, up 5.2 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Ji-hwan Park] Although the short-term impact of the novel coronavirus infection (Wuhan pneumonia) on the domestic stock market is inevitably negative, it is expected that the upward trend will continue in the mid to long term, supported by the global economic recovery and policy responses of major countries. However, due to the market’s nature of reflecting anxiety in advance and then taking a wait-and-see approach, the impact of Wuhan pneumonia will ultimately depend on the future speed of virus spread.

◆ Jinwoo Lee, Researcher at Meritz Securities = The fear of disease has already been priced in. There is a peak to the fear of disease. Initially, the market reacts sensitively depending on whether the new disease is contagious, curable, or controllable, but once the fear passes its peak, the financial market quickly stabilizes. This was the case with SARS and MERS, and I believe it is no different now. Therefore, it is important to first identify the peak of fear in the financial market. Compared to the cases of SARS and MERS, it appears that the typical level of fear regarding the disease has been reflected. In the cases of SARS and MERS, the market fear (correction) ended with a 4-5% price adjustment from the peak, and currently, a similar correction of just over 5% is underway.

There is a need for signals that the fear of the disease has reached its peak. The number of new confirmed cases and new deaths from the disease are representative indicators. When these indicators form a peak, the financial market often begins to stabilize (recover). Although the spread of the new disease is ongoing, if the rate of spread starts to slow down, stock prices form a bottom and begin to recover. This was the case with SARS and MERS. The current depth of fear is similar to that of SARS and MERS. However, the difference is that the peak indicators have not yet been met. Both new confirmed cases and new deaths are still on the rise. Once this fear passes, stock prices can recover rapidly.

◆ Dongwan Kim, Researcher at Eugene Investment & Securities = The global stock markets are declining due to Wuhan pneumonia. Considering that the increase in earnings estimates based on the semiconductor sector in the Korean market ranks among the highest worldwide, the ratio of virus infection confirmed cases relative to the population is among the lowest, and the Chinese mainland market, which reopened after the Lunar New Year, has absorbed the coronavirus shock, I believe the Korean market is now more likely to attempt an upward movement rather than a decline. Foreign investors are already showing a tendency to bet on neutrality or rise rather than decline. Despite the recent virus spread, earnings estimates for the semiconductor and IT hardware sectors have increased, and a sharp price recovery is expected once the virus situation calms down.

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