Rising Concerns Over Surge and COVID-19 Resurgence... Will the Rollercoaster Continue?

[Asia Economy Reporter Koh Hyung-kwang] The domestic stock market, which had been on an upward trend, has recently been experiencing sharp fluctuations again. Concerns are rising that the rollercoaster market seen last March, when the market was greatly shaken by the impact of the novel coronavirus infection (COVID-19), might be replayed. Experts predict that while the stock market may undergo short-term corrections, the likelihood of a crash similar to that in March is low.

According to the Korea Exchange on the 25th, during the recent 10 trading days from the 10th to the previous day, the KOSPI showed a fluctuation rate in the 0% range on only 3 trading days. On the remaining 7 trading days, it showed fluctuations of over 1%, indicating a volatile market. On the 18th and 20th, the decline was as much as 2-3%.

Last year, out of a total of 246 trading days, the KOSPI recorded a fluctuation rate of over 1% on 51 trading days (20.7%). This means that on average, the market showed a fluctuation of over 1% once every 5 trading days. In contrast, during the recent 10 trading days, more than half of the days showed fluctuations exceeding 1%, creating a more volatile market than usual.

The recent sharp fluctuations are interpreted as a result of the burden from the KOSPI's rapid rise in a short period and the overlapping movement of COVID-19 resurgence, which has dampened investor sentiment. The KOSPI rose sharply by 72.6% (1,046 points) from the yearly low of 1,439.43 points on March 19 to 2,485.17 points on the 13th of this month, far surpassing the early-year high. Having risen steeply in less than five months, it has entered a short-term correction phase. Since the temporary holiday on the 17th, the rapid increase in COVID-19 confirmed cases has caused fear of a second wave, freezing the stock market and somewhat weakening investor sentiment.

There are observations in the securities industry that the volatile market of last March could be replayed. In March, when the stock market was greatly shaken by the impact of COVID-19, the KOSPI market recorded fluctuations of over 1% on 18 out of 22 trading days. Only 4 trading days showed fluctuations in the 0% range, while the rest repeatedly experienced sharp rises and falls exceeding 1%. Among these, nearly half?10 trading days?saw movements exceeding 3%, resembling a rollercoaster ride.

Experts forecast that while there may be brief corrections, the possibility of a crash like that in March this year is low. This is because the fear caused by the spread of COVID-19 is not stronger than in March, and the market liquidity remains abundant. Lee Eun-taek, a researcher at KB Securities, emphasized, "It is true that the domestic COVID-19 resurgence negatively affects the KOSPI, but unless it is a global resurgence, the impact on corporate earnings will be limited. Above all, monetary and fiscal policies are still active during the COVID-19 phase."

The low risk of credit crunch is also favorable for the stock market. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "In March, after the pandemic declaration, there was a global dollar shortage and a significant increase in corporate default risk, whereas recently, although the COVID-19 situation in the US and Europe remains unstable, there are no abnormal signs in the credit market." Lee Kyung-min, a researcher at Daishin Securities, stated, "After the resumption of global economic activities, the global economy and trade are recovering, and even if social distancing is strengthened in Korea, economic activities will not stop. Although this COVID-19 resurgence may slow the pace of economic recovery, the recovery itself is unlikely to be broken."

However, there is also a view that short-term volatility could increase further. An So-eun, a researcher at IBK Investment & Securities, predicted, "During the first wave, downward revisions of growth forecasts and earnings estimates began in earnest after the peak of confirmed cases, but since the impact of the spread has already been experienced, this time the outlook for the economy and earnings may be lowered more quickly. Before the daily confirmed cases exceeded triple digits, the stock market was on a rising trend to the point of overheating concerns, and in this burdensome situation, encountering a major negative factor could further weaken investor sentiment."

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