[Good Morning Stock Market] "COVID-19 Second Wave... Growth Rate Forecast Will Be Lowered Further"

When Social Distancing is Raised to Level 3
Private Consumption Rebound in Q2 Expected to Decline Again
"Growth Stock Paradigm to Continue After Adjustment"

[Asia Economy Reporter Minji Lee] The KOSPI is undergoing a slight correction due to the second wave of the novel coronavirus infection (COVID-19). This is because investment sentiment has worsened amid growing concerns over the contraction of domestic economic activities caused by the spread of COVID-19. Market experts expect that if social distancing is raised to level 3, the downward revision of the domestic growth forecast will be even greater. The domestic stock market is expected to experience a slight correction as political uncertainties in the U.S. and trade frictions between the U.S. and China add to the situation.

[Image source=Yonhap News]

◆ Sungwoo Park, Researcher at DB Financial Investment = Community infections are rapidly spreading mainly in the metropolitan area, with daily new confirmed cases increasing to triple digits since the 14th. The domestic economy is likely to show a bumpy W-shaped trajectory in private consumption, which had recovered in the second quarter, due to the exhaustion of the emergency disaster relief fund effect and the spread of COVID-19 in the community.

The key variables are the progression of COVID-19 and whether social distancing levels will be raised. Elevation to level 3 involves significant social and economic costs, so the final decision will be made after in-depth consultations with the government and various sectors of society. Since objective indicators are almost met, implementation is possible depending on whether the situation worsens further.

If the measure is realized, an additional downward revision of this year’s growth rate, led by private consumption, will be inevitable. The Bank of Korea hinted at an additional downward revision of the growth forecast from the May projection (-0.2%) at the recent Monetary Policy Committee meeting, and it is expected to present an even lower forecast reflecting the current worsening situation.

◆ Yujun Choi, Researcher at Shinhan Financial Investment = If the peak of the spread speed is confirmed this week, the KOSPI is expected to find support around the 2150 level. Although fears of the pandemic have significantly decreased due to expectations for vaccine commercialization and stimulus measures, a correction phase inevitably occurs during the rebound period after reflecting large-scale negative factors.

Previously, after the Lehman Brothers crisis, the KOSPI rose more than 70% from its low during the rebound phase but experienced about an 11% correction over two months. This was due to the possibility of exit strategies and a slowdown in economic improvement. Considering this in the current context, the KOSPI is expected to show support around 2150 due to net buying inflows from individuals.

In this situation, the leading stocks in sectors that previously drove the market are expected to strengthen their leadership positions further. After the Lehman crisis, materials and consumer discretionary sectors led the rebound, and the leading stocks maintained their positions through the correction phase without change.

The growth stock paradigm, including non-face-to-face, future cars, and healthcare sectors, which led the market this year, is expected to continue. With the earnings season over, there is also a lack of momentum for rotation into other sectors. Considering that the correction phase has solidified the positions of existing leading stocks, passing the peak of uncertainty could be used as a buying opportunity.

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