Stock Market Collapsed by COVID-19, 3 Key Factors That Will Decide KOSPI's Fate

Economic Impact Begins This Month... Volatility Inevitable Amid Economic Slump
Stimulus Breakthrough... China and US Cut Interest Rates, Korea Accelerates Supplementary Budget
Foreigners Sold Net 3.648 Trillion Won Last Week... Approaching Net Buying Turning Point

[Asia Economy Reporter Song Hwajeong] As the KOSPI falls below the 2000 mark, the market is on high alert over how long the stock market fear caused by the novel coronavirus infection (COVID-19) will continue. The spread of COVID-19, liquidity supply from stimulus measures by major countries, and whether foreign investors who have been selling will return are cited as variables that will affect the stock market rebound going forward.

On the 2nd, the KOSPI and KOSDAQ showed fluctuating movements between rises and falls. On that day, the KOSPI opened at 1998.18, up 0.56% (11.17 points) from the previous trading day. However, as of 9:30 a.m., the KOSPI recorded 1975.16, down 0.6%, falling below the 1980 level. At the same time, the KOSDAQ recorded 607.66, down 0.5% (3.07 points). The KOSDAQ also started the session rising more than 1% but soon turned downward. However, after 10 a.m., both indices turned to an upward trend.

◆ COVID-19 Impact Intensifies in March = The number of confirmed COVID-19 cases in Korea is still increasing rapidly. As of the day before, the number of confirmed cases exceeded 3,700. Lee Kyung-min, a researcher at Daishin Securities, said, "As COVID-19 fear spreads from China, Korea, and Europe to the United States, it is stimulating volatility in the global financial markets," adding, "Extreme fear is triggering increased volatility and supply-demand instability in financial markets, and unless investment sentiment contraction is curbed, increased volatility in global financial markets is inevitable for the time being."

In particular, the fact that the economic impact of COVID-19 will become more pronounced starting in March is expected to be an additional burden on the stock market. On the 29th of last month, China's National Bureau of Statistics announced that the Purchasing Managers' Index (PMI) for February was 35.7, the lowest level ever recorded. A PMI above 50 indicates economic expansion, while below 50 indicates contraction. Korea's exports in February increased by 4.5% year-on-year, marking a return to growth after 15 months, but this is considered to have limited significance. Kim Jin-myung, a researcher at Hanwha Investment & Securities, said, "From March, the effects of domestic production disruptions, weak external demand from China and others, and paralysis of global value chains will be fully reflected, causing exports to show considerable weakness," adding, "The future development depends on the prolongation of supply shocks caused by COVID-19 spread and whether demand shocks persist."

◆ Liquidity Supply from Stimulus Measures as a Breakthrough = Amid inevitable stock market instability due to the spread of COVID-19, the market sees economic stimulus measures as a breakthrough to overcome this crisis. Kim Ye-eun, a researcher at IBK Investment & Securities, said, "As pandemic fear spreads, economic growth forecasts for this year are being revised downward one after another, raising expectations for government stimulus measures higher than ever," adding, "If market liquidity becomes more abundant through monetary policy, liquidity will flow into the stock market after COVID-19 passes its peak."

Earlier, China proactively lowered the preferential loan rate, which serves as the benchmark interest rate, and expectations for additional rate cuts and stimulus measures remain high. On the 28th (local time), Jerome Powell, Chair of the U.S. Federal Reserve (Fed), said in an emergency statement, "We will act appropriately and use our tools to support the economy." The market expects the Fed to either cut the benchmark interest rate further or resume quantitative easing (QE), supplying liquidity mainly through long-term bonds. In Korea, movements toward supplementary budgets are also accelerating. The government plans to submit a supplementary budget bill for COVID-19 response on the 5th.

◆ When Will Foreign Investors Return? = The sharp decline in the stock market last week was driven by large-scale selling by foreign investors. Foreign investors net sold about 3.648 trillion KRW in the domestic stock market during the week. As of 10:30 a.m. on that day, individuals and institutions were net buyers of 160 billion KRW and 150 billion KRW respectively in the KOSPI, pushing the index up, while foreign investors continued selling with 330 billion KRW. Ha In-hwan, a researcher at Meritz Securities, said, "Foreign investor supply-demand is in an oversold phase, and especially spot supply-demand reached an oversold phase on the 28th of last month," adding, "The turning point to net buying is approaching."

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