'10 Times This Month Alone with Over 3% Fluctuations... How Long Will the Stock Market Continue to Volatile?'

[Asia Economy Reporter Koh Hyung-kwang] Due to the impact of the novel coronavirus infection (COVID-19), concerns about an economic recession are spreading, causing the stock market to experience rollercoaster-like sharp fluctuations. Since the beginning of this month, there have been only three days when the KOSPI index's volatility was in the 0% range. Given that the contraction of the real economy is still in its early stages, market instability is expected to be inevitable for the time being.

According to the Korea Exchange on the 30th, out of the 20 trading days in the KOSPI market up to the 27th of this month, there were 17 trading days when the index recorded a fluctuation rate of more than 1%. Only three trading days showed volatility in the 0% range, while the remaining 17 days experienced sharp rises and falls exceeding 1%. Among these, there were as many as 10 trading days with extreme rollercoaster-like swings of over 3%.

Last year, out of a total of 246 trading days, the KOSPI index recorded fluctuations of more than 1% on 51 trading days (20.7%). On average, this means that the index moved more than 1% once every five trading days. The months with the highest number of days with over 1% fluctuations were January and November, each with six occurrences. Even in July and August last year, when Japan's trade retaliation intensified and the 1900-point level was breached, there were only five trading days each with fluctuations exceeding 1%. Additionally, April, May, October, and December each had four such days, June and September had three, and March had only two trading days with fluctuations over 1%.

However, this year has seen an increase in the frequency of sharp fluctuations. There were nine days in January, eight in February, and already 17 days this month with movements exceeding 1% either up or down. Since the World Health Organization (WHO) declared COVID-19 a pandemic on the 11th, volatility has increased further. This is interpreted as the pandemic declaration signaling that a short-term end to COVID-19 is unlikely, which has maximized market anxiety. From the 11th to the 25th, the KOSPI index showed volatility of more than 2% for 11 consecutive trading days, and from the 18th to the 25th, there were six trading days with fluctuations exceeding 4%. Particularly on the 19th and 24th, the index experienced swings in the 8% range, surpassing rollercoaster levels and entering a 'panic market' phase.

On the 24th, during intraday trading, the KOSPI and KOSDAQ indices rebounded by more than 5%, triggering a buy-sidecar that temporarily suspended program trading in both markets. This occurred just one day after a sell-sidecar was triggered in both markets immediately after the opening on the 23rd. Combining buy and sell sidecars, the KOSPI market has seen six sidecar activations this year alone. Lee Kyung-min, a researcher at Daishin Securities, stated, "Although countries worldwide, including the United States, have lowered benchmark interest rates and introduced economic stimulus measures one after another, they have failed to quell the fear sentiment. The market's fear has reached an extreme level, reacting to even minor uncertainties with sharp rises and falls."

Market experts predict that the highly volatile trend will continue for the time being as uncertainty about COVID-19 still dominates the market. Kim Hyung-ryeol, head of the Research Center at Kyobo Securities, said, "The biggest concern is uncertainty. It is difficult to accurately gauge the economic impact of COVID-19, and forecast figures vary widely. As long as uncertainty remains, the market will continue to show unstable behavior." Kim Yong-gu, a researcher at Hana Financial Investment, explained, "The key to market stabilization is how quickly the real economic shock is resolved. If the global financial markets and real economy continue to be adversely affected by the COVID-19 impact, sharp fluctuations in the stock market are inevitable."

There is also a view that it will be difficult for the stock market to rebound in a sustained manner as the real economic shock caused by COVID-19 begins to take hold. Kim Young-hwan, a researcher at KB Securities, said, "Since 1945, during seven recessions and stock market corrections, without exception, stock prices rebounded only after confirming negative growth in gross domestic product (GDP). If this case follows past patterns, the stock market correction is more likely to end in the second quarter rather than the first quarter."

There are opinions that volatility could expand further. Seo Sang-young, a researcher at Kiwoom Securities, observed, "Initially, the issue was limited to factory shutdowns and supply disruptions, but it has expanded to concerns about economic recession and now the scenario is spreading to debt and financial crisis debates. The Korean stock market may see increased volatility as concerns about economic contraction intensify due to the rapid rise in confirmed COVID-19 cases in the United States."

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