Pandemic Shock... Turbulent Stock Market & Foreigners' Panic Selling, "Different from the Past"

'One-time materials' caused a decline
There was a V-shaped rebound
But foreign demand has also changed
It is expected to be a 'battle against time'

[Asia Economy Reporter Oh Ju-yeon] The global stock markets are shaking as the World Health Organization (WHO) declared the novel coronavirus infection (COVID-19) a global pandemic.

The domestic stock market's clock has turned back as much as four years. Until a month ago, voices expecting a 'V'-shaped rebound were stronger, arguing that past epidemics did not change economic trends. However, as time passes, attention is shifting to the current economic and stock market situation, which is different from before, and the availability of treatments, raising concerns about prolonged impact. Foreign investors' supply and demand have also changed from before, leading to forecasts that it will ultimately be a 'battle against time.'

The KOSPI started lower in the 1880s on the 12th. The U.S. stock market plunged following the World Health Organization (WHO)'s declaration of a COVID-19 pandemic, negatively impacting the domestic stock market. On this day, the KOSPI index was displayed on the electronic board in the Hana Bank dealing room in Jung-gu, Seoul. (Multiple exposure) Photo by Kim Hyun-min kimhyun81@

According to the Korea Exchange on the 12th, the KOSPI fell to 1873.75 during the session, marking its lowest level since February 12, 2016 (intraday low of 1817.97).

Until early last month, the index had plunged to the 2080 level due to the impact of COVID-19, but then surged more than 6% in a 'V' shape to 2227.94 within four trading days. This led to a prevailing opinion that if the current situation was limited to the impact of COVID-19, the effect on the stock market would be short-term.

For example, during previous outbreaks of Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), the KOSPI fell but rebounded as fears subsided. After the SARS outbreak at the end of 2002, the index dropped to the 510 level in March 2003 but rose to the 810 level by the end of the year. During the MERS outbreak, the index fell to the 1800 level in August 2015 but recovered to the 2000 level by October.

Such sharp fluctuations caused by 'one-off factors' were also observed in the U.S. stock market. In the past decade, there were cases of short-term sharp declines followed by rebounds. For instance, during the 2011 financial crisis, the market dropped nearly 15% in one week but rebounded by August. Similarly, when S&P downgraded the U.S. credit rating in 2015 and when the Federal Reserve raised interest rates consecutively in 2017, the market fell more than 10% within about a week but the sharp declines did not last long.

However, the current situation differs from previous cases. From an infectious disease perspective, COVID-19 differs from SARS and MERS in that there is still no treatment available. From an economic and stock market trend perspective, previous cases occurred when the economy was already recovering from the 2008 financial crisis, so the decline was a 'temporary factor.'

Accordingly, if the current situation is limited to the impact of COVID-19, stock prices may recover quickly. However, if it is part of a bubble bursting process, the decline may just be beginning. According to economist Lee Jong-woo's analysis, the bubble formed over the past 11 years must completely disappear for the decline to end. Considering that stock prices fell more than 40% from the peak during past bubble collapses, there is still room for further decline. As of the previous day, the U.S. stock market had fallen 20% from its peak.

Compared to the 2009 H1N1 pandemic when WHO declared a pandemic, the overall prognosis is not favorable. Kiwoom Securities researcher Seo Sang-young analyzed, "At that time, the financial market was already responding to the U.S.-originated financial crisis, so the related case did not have a significant impact on the market."

Although President Trump said he would expand fiscal spending by declaring a national emergency this time as well, Seo emphasized that the financial market is different now. Seo said, "The global stock market fell 40-60% in 2008 but rose 10-30% in 2019. However, one common factor is that central banks worldwide implemented aggressive monetary policies and governments expanded fiscal spending. Considering this, the stock market may not rise like in 2009, but it is expected not to show extreme panic-driven behavior."

Foreign investors' selling is also unusual. In 2009, when H1N1 occurred, the longest continuous net selling period by foreigners was from February 10 to March 4 (17 trading days), which was more influenced by the Lehman Brothers bankruptcy than by H1N1. After that period, foreigners continued net selling.

However, after COVID-19, foreigners are continuing massive sell-offs rather than breaking the longest record. This month, foreigners have sold stocks worth 4.957 trillion won. On the 9th, they recorded the largest amount ever since data storage began in 1999, selling 1.3125 trillion won in a single day. In particular, they sold the most shares of Samsung Electronics and SK Hynix, which had been driving the index. Over the past month, foreigners sold more than 3 trillion won worth of Samsung Electronics shares alone.

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