[Good Morning Stock Market] China Economic Stimulus and More 'Expectations' Than 'Concerns'

[Asia Economy Reporter Oh Ju-yeon] On the 4th (local time), the U.S. stock market closed higher amid rising expectations for China's economic stimulus policies. The Dow Jones Industrial Average rose 1.44% to 28,807.63, the S&P 500 increased 1.5% to 3,297.59, and the Nasdaq Composite surged 2.1% to close at 9,467.97. The Nasdaq set an all-time high both intraday and at the close. Since the domestic stock market also showed strength the previous day on hopes for China's economic stimulus, there is analysis that improved investor sentiment may continue.

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. stock market rose sharply as buying demand increased amid heightened expectations for China's economic stimulus policies. The Philadelphia Semiconductor Index's 3.12% surge is positive for the Korean stock market.

Additionally, the ongoing expectations for China's economic stimulus policies, which were a factor in the Korean market's strength the previous day, are also expected to improve investor sentiment. The market anticipates not only liquidity supply from the People's Bank of China but also a possible interest rate cut in the loan rate decision on the 20th, along with reductions in reserve requirements, an increase in VAT refund rates, and tax reforms such as personal income tax cuts.

Meanwhile, President Trump is scheduled to deliver a State of the Union address to the U.S. Congress (at 11 a.m. Korean time), where he is expected to emphasize recent U.S. economic growth. Overall, it is anticipated that he will express confidence in the U.S. economy, which is also favorable.

Of course, concerns about China's economic slowdown due to the novel coronavirus infection (Wuhan pneumonia) remain, and uncertainties persist, such as the rising probability (39.5%) of Bernie Sanders being nominated as the Democratic presidential candidate. Additionally, Tesla (+13.73%) continued its sharp rise after surging 20% the previous day, at one point climbing over 24% intraday, but it sharply gave back gains just before the close, increasing the possibility of profit-taking.

◆ Ilgu Kim, Hanwha Investment & Securities Researcher = Although the virus is spreading worldwide, no super-spreader has appeared outside China. Therefore, despite the virus's spread, the risk of the global economy falling into recession is low. The problem lies with the Chinese economy. Although stock prices, which had been rising at the beginning of the year, fell worldwide due to the virus spread, the decline in Chinese stocks was the largest. Concerns about the Chinese economy also caused significant drops in commodity prices such as oil and copper. All indicators suggest that the Chinese economy will suffer a major blow from this virus outbreak.

However, these price movements are likely temporary phenomena occurring during the virus's spread. Once the virus spread ends, economic activity will revive, and various countries including China will announce stimulus measures to boost vitality. The question is 'when will that be possible?'

Currently, the initial phase of very rapid virus spread has passed, and the spread rate has slowed compared to the initial stage, so the daily increase rate of patients is decreasing while the total number of patients is significantly increasing, which can be seen as an intermediate stage. Although this may be somewhat optimistic, if additional super-spreaders are prevented, the daily patient increase rate could approach nearly zero within a week.

At that time, the Chinese government will prepare large-scale stimulus measures to soothe worsening public sentiment, prevent economic growth from plummeting, and fulfill the trade agreement with the U.S. It is also highly likely that many countries worldwide, including Asian nations, will jointly announce stimulus measures as part of international cooperation. President Trump has already stated his intention to assist China. If several countries centered on China announce stimulus measures by mid-February, the economic activity contraction caused by the virus spread will end in less than a month, and financial markets could return to the early-year economic recovery mood.

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