Pandemic Concerns Expected to Sustain Volatile Market Between 1800 and 2100

Securities Firm Research Center Head Outlook
US Fed Considers Additional Rate Cuts and ECB Reviews Long-Term Lending... Caution Needed Depending on Policy Response

[Asia Economy Reporter Song Hwajeong] As concerns over the pandemic caused by the spread of the novel coronavirus infection (COVID-19) grow, the stock market has fallen into panic. The domestic stock market dropped 4.19% the previous day, and the U.S. stock market also fell by more than 7%. Experts emphasize that volatility is expected to continue for the time being and that it is necessary to monitor policy responses from major countries.

On the 10th, Asia Economy conducted a survey of research center heads at securities firms regarding the expected KOSPI range for March, predicting it will move between a low of 1800 points and a high of 2100 points.

Oh Hyun-seok, head of the Samsung Securities Research Center, said, "Due to pandemic concerns over COVID-19 and the sharp drop in international oil prices, the domestic stock market continues to experience high volatility. Since the beginning of this month, the intraday volatility of the KOSPI and the KOSPI 200 volatility index (VKOSPI) have reached their highest levels in 10 years (since 2011)." He analyzed, "There is a strong possibility that the KOSPI will continue a volatile market with relatively large fluctuations between 1950 and 2100 points for the time being."

Yoon Chang-yong, head of the Shinhan Financial Investment Research Center, stated, "From March, as COVID-19 spreads intensively to developed countries, concerns about demand contraction in developed countries and the resulting deterioration of Korean exports have increased. The stock market will go through a process of confirming the containment of COVID-19 spread, the monetary policies of major central banks including the U.S. Federal Open Market Committee (FOMC) in March, and policy responses from various governments."

The current risk factors suppressing the stock market include concerns about economic slowdown due to the spread of COVID-19 and policies falling short of market expectations. Yoon explained, "Concerns are expanding over economic sentiment contraction, asset price crashes, and real economy deterioration due to the spread of COVID-19. The stock market is in a situation where additional declines are feared due to a drop in valuations from rising risk premiums and a more pronounced decrease in earnings estimates. The somewhat limited policy capacity is also a cautionary factor."

In particular, there is an opinion that government responses fall short of market expectations. Park Ki-hyun, head of the Yuanta Securities Research Center, pointed out, "Although the U.S. Federal Reserve (Fed) cut interest rates by 50 basis points last week and is expected to cut an additional 50 basis points at the March meeting, there is a perception that this is insufficient to overcome the current situation. Credit default swaps (CDS) in Europe, centered on Italy, and U.S. high-yield bond rates are rising sharply, so the urgent task is to introduce policies that can at least block such credit risks."

However, since governments may introduce additional measures, the strength of policies is expected to be a key factor for future market rebounds. The European Central Bank (ECB) is reviewing a long-term refinancing operation (TLTRO) and will hold a monetary policy meeting on the 12th to decide on interest rate cuts and other measures. Some expect the ECB to cut the deposit rate by 10 basis points. The FOMC meeting is scheduled for the 17th-18th, and the People's Bank of China’s interest rate decision is set for the 20th. Park said, "Ultimately, the market is demanding policies beyond the existing quantitative easing (QE) from the Fed, so it is necessary to confirm the Fed’s policy stance at the March FOMC."

Kim Ji-san, head of the Kiwoom Securities Research Center, predicted, "If the Fed announces aggressive monetary policies such as rate cuts and QE, along with the ECB’s TLTRO, it will act as a positive factor for stock market gains."

For the time being, there is an opinion that caution is needed while monitoring policy responses. Yoon emphasized, "Since it is meaningless to approach the market simply from a price perspective when fundamentals are damaged, such as through earnings estimate declines, continuous monitoring is necessary regarding the spread of COVID-19, policy responses, foreign capital outflows in the Korean bond market, and exchange rate stability."

As a market response strategy, it is diagnosed that existing leading stocks have an advantage. Lee Kyung-soo, head of the Meritz Securities Research Center, said, "Considering the rapidly changing market volatility, a short-term wait-and-see approach followed by phased buying is necessary. Leading stocks such as IT and electric vehicles, which have visible earnings improvement, are more advantageous than stocks that have fallen excessively in the short term."

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