[Good Morning Stock Market] Expectations Rise for Easing Impact of New Coronavirus Shock

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] The KOSPI rebounded after three days and regained the 2220 level on the 11th despite concerns over the spread of the novel coronavirus infection (COVID-19). This was due to a stock market rally following signs of economic recovery in the U.S. and the restoration of investor sentiment after the interest rate cut.

On the 11th (local time), major indices on the New York Stock Exchange showed mixed trends amid expectations that the spread of the novel coronavirus might slow down. As the rate of new COVID-19 cases in China decreased, hopes grew that the epidemic might have passed its peak. Accordingly, the Dow Jones Industrial Average on the NYSE closed at 29,276.34, down 0.48 points (0.00%) from the previous session. The S&P 500 and Nasdaq continued their streak of reaching all-time highs both intraday and at closing.

◆ Kim Daejun, Researcher at Korea Investment & Securities = The KOSPI is expected to rebound in February as concerns over COVID-19 ease. In particular, large-cap stocks are anticipated to rise significantly. This is a result of diminished fear regarding COVID-19. From the first trading day of February until the day before, large-cap stocks in the KOSPI rose by 5.2%, which is 0.3 percentage points higher than the KOSPI's overall return. Compared to mid-cap and small-cap stocks, the gap exceeds 1.5 percentage points. It seems clear that the key to the rebound lies with large-cap stocks. The relative strength of large-cap stocks is likely to continue over time. The reason for this view is that the strong performance of large-cap stocks is not limited to Korea. It is also clearly observed in the U.S., which leads the global stock market.

The domestic situation in Korea also supports the strength of large-cap stocks. Looking at the yield curve in the bond market recently, the level is lower than a month ago. The domestic economy is very contracted due to concerns over the spread of COVID-19. Considering this, mid- and small-cap stocks, which depend heavily on domestic demand, may struggle to lead the market. On the contrary, large-cap stocks, which have a high proportion of overseas sales and are less adversely affected by the COVID-19 issue, are relatively safer. Therefore, a strategy focusing on large-cap stocks rather than mid- and small-cap stocks is necessary for the time being. Of course, even among large-cap stocks, growth stocks are expected to perform somewhat better than value stocks.

◆ Yoon Yeosam, Researcher at Meritz Securities = The fear of the virus is transitioning from the spread phase to the time phase. From now on, it is important to assess the impact on the real economy. During the time of fear, both risk and safe assets emphasize their advantageous aspects to each other. Risk assets are progressing strongly as they gauge new momentum for a rebound, while safe assets assess the degree of real economic slowdown. Although volatility remains this week, U.S. stocks are hitting all-time highs and the Chinese stock market is holding up well, recovering about half of its losses. While it is premature to underestimate or dismiss the fear of the virus, it is necessary to note that since 2000, epidemic-related issues have tended to be resolved within about one month in terms of risk assets (stocks).

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