[Good Morning Stock Market] COVID-19 Lockdown Lift Imminent... "Foreigners' Return Not Yet"

[Asia Economy Reporter Minji Lee] Starting next month, phased restrictions will be implemented primarily in the United States, Germany, France, and other countries due to the spread of the novel coronavirus infection (COVID-19). This decision is based on the assessment that prolonged economic lockdown measures could severely damage national economies. As major countries are currently releasing declining economic indicators and first-quarter earnings one after another, the market believes that attention should be paid to stocks expected to show earnings growth on a per-stock basis.

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◆ Kyungmin Lee, Researcher at Daishin Securities = Looking at the 20-day cumulative net buying trend of foreign investors in the KOSPI market, the peak was 13.5 trillion KRW on the 20th of last month. Since March 5, foreign investors have continuously net sold for 34 out of 35 trading days on a daily basis, except for just one day.

The reason for the continued net selling by foreign investors is the explosive spread of COVID-19 in the U.S. and Europe, coupled with a significant drop in oil prices, which caused funds from the U.S., Europe, and the Middle East to withdraw from the domestic market. Recently, the selling pressure from foreign investors has weakened due to the slowdown in the increase of COVID-19 confirmed cases in the U.S. and Europe, but since oil prices continue to fall, a switch to net buying by foreign investors does not seem easy.

For foreign investors to return, economic activity resumption due to COVID-19 easing, oil price stabilization, and valuation attractiveness need to appear. It is expected that if oil prices stabilize around the $20 level, foreign investors may switch to net buying.

Until a switch to net buying by foreign investors is confirmed, further gains in the KOSPI seem difficult. Currently, the KOSPI is experiencing fatigue and supply-demand burdens accumulated from a short-term rapid rise, and it is expected to adjust its pace depending on oil prices, short-term direction, economic indicators, and first-quarter earnings announcements. In particular, individual investors may engage in short-term profit-taking during the holidays scheduled from late April to early May.

◆ Kyungsoo Lee, Researcher at Hana Financial Investment = The domestic stock market, which has shown a rollercoaster trend since the beginning of the year, is expected to require more attention to individual stocks rather than indices going forward. This is because the volatility of index rises and falls is expected to decrease gradually. Currently, the net buying by pension funds is decreasing inversely to the index rise. Foreign investors, who manage MSCI KOREA supply and demand, have not shown net buying on a weekly basis since the COVID-19 issue began.

Furthermore, due to the temporary ban on short selling until September, the rise of certain stock groups may continue. The performance of stocks with high short-selling ratios and 60-day divergence in the KOSPI 200 shows an inverse relationship. Since short selling is banned, there are fewer forces to brake the upward momentum of stocks. A trend of sustained stock price increases is expected.

Also, as corporate earnings are generally being revised downward this year, focus should be on stocks with clear prospects for second-quarter earnings and annual earnings improvement. In the second quarter, domestic stocks are expected to have more stable earnings than export stocks. Export stocks are expected to suffer profitability declines due to reduced global demand and are also observed to have diminished interest rate attractiveness.

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