Shaken by the Pandemic... Key Keywords to Watch in Volatile Market Investing

Daily Case Growth Rates in the US and Europe, Bank Stock Prices, and VIX Highlighted

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[Asia Economy Reporter Kum Boryeong] As the spread of the novel coronavirus infection (COVID-19) increases volatility in global stock markets, analysts suggest that investors should focus on key investment points such as the daily growth rate of confirmed cases, bank stock prices, and the U.S. Volatility Index (VIX).

According to the Korea Exchange on the 25th, the KOSPI index rose 8.6% (127.51 points) from the previous session to 1609.97. On the 19th and 23rd, it fell by 8.39% and 5.34%, respectively, and on the 20th, it rose by 7.44%, showing extreme volatility over a few days. Similar situations are being experienced in stock markets worldwide, including the U.S.

The most noteworthy factor in a volatile market is analyzed to be the "daily growth rate of confirmed cases," as the root cause of all market volatility is concerns over the spread of COVID-19. Among these, the growth rate of confirmed cases in Europe and the U.S., which have significant impacts on the global economy, is relatively more important. Kang Songcheol, a researcher at Shinhan Financial Investment, said, "The most important thing is for concerns about virus spread to subside." He explained, "As of the 22nd, the daily growth rate of confirmed cases in major European countries such as the U.S., Italy, Spain, and Germany is at a high level of 10-30% or more. This figure needs to fall below 5% for volatility to ease."

Bank stock prices also serve as an important indicator. The domestic banking industry index fell more than 31% in one month, from 202.80 on the 25th of last month to 139.40 on the previous day. The decline in stock prices continues due to concerns over deteriorating interest margins caused by global zero interest rates and losses from corporate defaults. Researcher Kang said, "Monetary and fiscal policies to prevent economic recession should reduce concerns about recession and defaults and reverse the downward trend of long-term interest rates, but looking at bank stock prices, the market does not seem to believe in the effectiveness of these policies." He added, "For this to be seen as a sign of easing concerns, both interest rates and bank stocks need to rise together."

The VIX should also be closely monitored. The VIX, which measures implied volatility in the U.S. stock market, is at a higher level on a monthly basis than during the financial crisis. Kang Hyunki, a researcher at DB Financial Investment, said, "It is necessary to assess the degree of worry embedded in current stock prices." He diagnosed, "If the risk indicator has risen excessively and there is room for it to decrease afterward, it can be seen as the bottom of the stock market."

Experts unanimously agreed that long-term investors should check "valuation." Valuation plays an important role in long-term investments of three to five years or more, and with stock prices plunging, valuations have become relatively much lower than before. Recent securities firm reports have increasingly used expressions such as "valuation undervalued relative to growth," "attractive valuation," and "historically lowest valuation." These imply either an excessively sold-off phase or sufficient potential for an upward move.

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