Global COVID-19 Case Growth Slows, Easing Market Fears... "Too Early to Relax"

[Image source=EPA Yonhap News]

[Asia Economy Reporters Jeong Hyunjin and Gu Eunmo] As hopes for the containment of the novel coronavirus infection (COVID-19) have eased market anxiety, the market's focus is now shifting to whether the COVID-19 containment trend will continue. This recent stock market rise is significant in that it reflects hope that the economy can recover if the COVID-19 crisis is resolved. However, since the prevailing view is that it is still too early to be reassured that the crisis has ended immediately, future responses are expected to determine the direction of stock prices.

According to Bloomberg and others on the 6th (local time), the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear index," fell 3.3% from the previous trading day to 45.24. This is the lowest level in the past two weeks. The VIX index, which rose to 82.69 on the 16th of last month, has dropped to about half that level. Marco Corannovic, Global Head of Derivatives at JP Morgan, said, "It appears that the peak of (COVID-19) in New York State is near," adding, "Initial data on social distancing seems to have been generally effective."

With the stock market rise that day, major indices on the New York Stock Exchange have rebounded more than 20% since hitting a low on the 13th of last month. Some cautiously speculate that the market may have already passed the bottom, but given the rollercoaster market trends over the past month depending on the progression of the COVID-19 crisis, there remains the possibility that the market could return to a downward trend.

Cash Lien, Foreign Exchange Strategy Director at BK Asset Management, noted that new death tolls are slowing in Spain and France, indicating "risk sentiment is improving," but added, "It is still too early to say that the improvement in sentiment will continue while lockdown measures are still in place." She further stated, "However, hospitalizations have somewhat decreased over the weekend, and in some Asian countries, the COVID-19 confirmed case curves are flattening."

Ultimately, the spread of COVID-19 in the U.S. and Europe over the next week is expected to determine the stock market's direction. CNBC reported, "Analysts are debating whether the bottom has been reached," adding, "The virus reaching its peak will mean the economy can restart, and the market will have to absorb this change."

In the domestic stock market, most evaluations agree that it is still too early to say the market has fully rebounded. It is premature to forecast the COVID-19 situation, and the real economy is beginning to suffer significant damage. On that day, individual investors led the index rise by net buying 171.8 billion won. This was a shift from net selling of over 800 billion won the previous day to net buying in just one day. Meanwhile, institutions and foreign investors net sold 168.4 billion won and 4 billion won, respectively.

Kim Ilgu, Chief Economist at Hanwha Investment & Securities, diagnosed the recent stock price rise as a technical rebound rather than a fundamental uptrend. He said, "The stock market is moving according to the speed of virus spread," and analyzed, "Even if sentiment improves, it will take a long time for the economy to normalize and corporate profits to recover to previous levels."

U.S. President Donald Trump announced that he is considering directly providing additional cash payments to citizens as part of an economic stimulus related to the COVID-19 crisis. Earlier, the U.S. government passed a budget bill providing $1,200 per adult and $500 per child, but now discussions are underway to inject additional fiscal resources.

Japan is also actively pursuing economic stimulus. The large-scale stimulus package worth 108 trillion yen, to be decided at the Cabinet meeting on the day, includes payments of 300,000 won per household and up to 2 million won to small and medium-sized enterprises. This will be implemented sequentially starting in May. Prime Minister Shinzo Abe said, "Our top priority is to protect the lives and livelihoods of the people, and we will mobilize all policy tools including fiscal, financial, and tax measures without being bound by precedent."

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