China's Successive Stimulus Measures... Signs of Bottoming Out from the 'Corona Shock'

Foreigners Living in Fear
Net Purchase of 1.104 Trillion KRW Over Three Days

[Asia Economy Reporters Oh Ju-yeon and Koo Eun-mo] The domestic stock market, which had plunged due to the novel coronavirus infection (Wuhan pneumonia), is regaining stability. Foreign investors have also stopped their selling spree and returned to net buying. This is because investment sentiment improved following China's massive economic stimulus measures announced after the novel coronavirus issue, along with consecutive tariff reduction measures on U.S. products, which greatly enhanced risk asset preference. With reassurance that the 'bottom' caused by the novel coronavirus issue has been confirmed, investment funds are pouring in, and the stock market is preparing for an additional rebound. However, the prevailing forecast is that the market will show a fluctuating upward trend for the time being, depending on whether the novel coronavirus spreads further and its impact on the first-quarter economy, rather than a steep rise.

Foreign investors have engaged in net buying of over 1 trillion won in the KOSPI market for three consecutive trading days (from the 4th to the 6th). On the 7th, despite the KOSPI declining, foreign investors continued net buying for four consecutive trading days.

Individual investors also supported the buying momentum by mainly purchasing Chinese consumer stocks such as AmorePacific, Paradise, and Hotel Shilla, which had recently shown weak stock prices due to the novel coronavirus impact. Institutions focused more on exchange-traded funds (ETFs) rather than individual stocks, with KODEX200 (134.2 billion won), KODEX Leverage (114.6 billion won), and KODEX KOSDAQ150 Leverage (57 billion won) ranking first to third in net purchases.

Demand waiting to enter the stock market amid infection fears has also increased significantly. According to the Korea Financial Investment Association, investor deposits reached 29.16 trillion won on the 5th, a 1.5% increase compared to the end of the previous month (28.72 trillion won). Investor deposits refer to funds that investors have left with securities firms after selling stocks or funds deposited to buy stocks, classified as funds waiting to be used for future stock purchases. An increase in investor deposits means that funds are flowing into the stock market.

Investor deposits have been on the rise, from 23.23 trillion won at the end of August last year to 24.46 trillion won at the end of September, 25 trillion won at the end of October, 24.67 trillion won at the end of November, and 27.34 trillion won at the end of December.

As trading volume in the stock market increases, investment sentiment is reviving. According to the Korea Exchange, the average daily trading value of the domestic stock market (KOSPI and KOSDAQ) this month was 13.2406 trillion won. This is an 11.4% (1.3594 trillion won) increase compared to last month (11.8813 trillion won) and exceeds last year's average daily trading value of 9.2992 trillion won. Compared to December last year (9.1634 trillion won), it has increased by 44.5% (4.0772 trillion won).

Experts predict that the domestic stock market will gradually escape the fear of the epidemic. This is because the aggressive stimulus measures by the Chinese government and positive economic indicators, along with the U.S. stock market continuing to hit record highs, are fostering expectations rather than concerns.

Park In-geum, a researcher at NH Investment & Securities, analyzed, "The People's Bank of China has already shifted its stance to liquidity supply, and the most effective policy to ease downward pressure on the economy, such as early implementation of infrastructure and high-tech investment expansion, is expected. Additionally, temporary consumption stimulus measures may also be implemented, so the Chinese stock market is judged to have confirmed its bottom."

The fact that the U.S. stock market has hit all-time highs across the three major indices, proving that investment sentiment remains valid, is also positive. The U.S. market is showing positive signals with various indicators rebounding, such as the January ISM manufacturing index announced earlier this month turning to expansion after six months.

However, it is important to note that there may be differences in the rebound speed between the U.S. and domestic stock markets. Ha In-hwan, a researcher at Meritz Securities, said, "Countries far from China fell due to the contraction of risk asset preference in global financial markets, so they are likely to overcome this in the short term. However, Asian stock markets may experience actual damage, so they will recover to some extent while monitoring the situation."

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