KOSPI Plummets Amid US Concerns... Settles Around 2200 Level, Better Luck Next Time

Foreigners Turn to Selling, Individuals Show Buying Momentum
Experts Say "No Crash Like March Expected"

[Asia Economy Reporter Song Hwajeong] As concerns over the resurgence of the novel coronavirus infection (COVID-19) caused global stock markets to plunge sharply, the domestic stock market also started the session with a steep decline. It is expected that speed adjustment will be inevitable for the time being, given the recent rapid rise.

As of 9:45 a.m. on the 12th, the KOSPI recorded 2,111.51, down 3.35% (73.01 points) from the previous day. It fell more than 4% in the early session, dropping below the 2,100 level, but later reduced the decline somewhat. The KOSDAQ also showed a weakness in the 3% range. The KOSDAQ recorded 730.11, down 3.56% (27.84 points) from the previous day.

This sharp decline was due to the global stock markets plunging the previous day amid concerns over the resurgence of COVID-19. The global stock market plunge is analyzed as having served as a pretext for short-term adjustment due to the resurgence of COVID-19 and the negative economic outlook from the U.S. Federal Reserve (Fed). SK Securities researcher Han Daehoon said, "The spread of COVID-19 has accelerated again in some states such as Texas and Arizona, raising fears of a second wave," adding, "Especially as the Floyd protests intensified, concerns about a second wave increased, and worries about economic lockdowns could also rise."

It is analyzed that cyclical stocks widened their losses as the Fed lowered expectations for economic recovery. Fed Chair Jerome Powell pointed out that economic uncertainty remains very high and that the adverse effects of COVID-19 on employment will last a long time. Although the Fed confirmed its continuous commitment to economic stimulus by stating it would maintain zero interest rates for a considerable period, investors appeared to react more to the negative economic outlook.

The return of foreign investors is also expected to be further delayed. Foreign investors, who showed buying interest in the early session, soon switched to selling. As of 10:01 a.m. in the KOSPI market, they net sold 180 billion won. Individual investors, who had been selling in the early session, switched to buying, net purchasing 194 billion won. The won-dollar exchange rate also rose that day, which is expected to delay the return of foreign investors. In the Seoul foreign exchange market, as of 9:03 a.m., the won-dollar exchange rate recorded 1,208.7 won per dollar, up 12.3 won from the previous day, returning to the 1,200 won level.

The possibility of the KOSPI recovering the 2,200 level has also increased in delay. Recently, the KOSPI has been touching the 2,200 level during trading sessions daily, attempting to stabilize above 2,200. NH Investment & Securities researcher Noh Donggil explained, "The 2,200-point level on the KOSPI implies a return to the pre-COVID-19 correction level, so it inevitably feels like a price burden," adding, "Although the net selling pressure from foreigners on the KOSPI has weakened, the fact that there is no clear sign of inflow from emerging market passive funds lowers the possibility of stabilizing above 2,200." Researcher Noh added, "For the inflow of emerging market passive fund money, it is necessary to stabilize emerging market currencies and resolve doubts about the recovery of U.S. economic growth."

For the time being, short-term adjustment is expected to be inevitable. Researcher Han said, "There is a possibility of short-term adjustment, but the likelihood of a sharp drop like in March is low," adding, "The policy packages implemented by each country are unprecedented in scale, and stock market stabilization funds are also on standby, so liquidity remains abundant."

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