[Good Morning Stock Market] "Possibility of Short-Term Volatility Increase Due to Trump COVID-19 Diagnosis... Low Likelihood of Trend Weakness"

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] Last week, the U.S. stock market faced downward pressure after U.S. President Donald Trump tested positive for the novel coronavirus infection (COVID-19). Although volatility in the Korean stock market may increase in the short term this week, the likelihood of a sustained downtrend is considered low.

◆Kyungmin Lee, Researcher at Daishin Securities=President Trump has tested positive for COVID-19. This has increased the exposure of global financial markets to short-term uncertainty. With the presidential election just a month away, global financial markets cannot help but be sensitive to changes in President Trump's health and election poll ratings. So far, it is difficult to say that safe-haven asset preference has strengthened significantly, but it is necessary to pay close attention to fluctuations in exchange rates and credit risk indicators for the time being.

The expansion of political uncertainty in the U.S., emerging amid adjustments in fundamental outlooks, negatively affects investor sentiment. Fluctuations in approval ratings between President Trump and Democratic presidential candidate Joe Biden are likely to lead to portfolio adjustments due to contrasting policies, resulting in increased volatility across sectors and individual stocks.

The passage of the U.S. fifth economic stimulus package through Congress will strengthen the downside resilience of global stock markets, including the U.S. However, it is difficult to be confident that this will provide enough upward momentum to overcome political uncertainty. Although the probability is low, the market may partially reflect anxiety about the worst-case scenarios related to President Trump's COVID-19 diagnosis.

Before the Chuseok holiday, the KOSPI successfully rebounded from the previous low and a short-term critical pivot point around the 2270 level, recovering to 2320. However, I have advised against chasing purchases and recommended a gradual increase in exposure during index corrections. Due to increased uncertainty stemming from the Trump factor, the KOSPI may temporarily fall below the 2270 level, opening the possibility of further downward adjustments.

The first support level is likely around the 2150 level on the KOSPI. From a valuation perspective, this represents the first inflection point for valuation level-up to this year's average (12-month forward price-to-earnings ratio (PER) of 11.415 times, confirmed earnings price-to-book ratio (PBR) of 0.865 times). Even if the KOSPI support level falls further depending on President Trump's health and approval rating trends, the possibility of breaking below the 2000 level is low.

◆Daejun Kim, Researcher at Korea Investment & Securities=After the Chuseok holiday, the Korean stock market reopened and may be significantly affected by the news of President Trump's COVID-19 diagnosis. Considering the increased correlation between the Korean and U.S. stock markets, this outcome is quite predictable. Moreover, looking at the trajectory of the iShares Korea ETF, which represents the Korean market, the Korean stock market may face short-term correction pressure on Monday. Given the extent to which this ETF declined on the 2nd, the KOSPI is likely to start below the 2300 level.

However, this does not mean the market will continue to weaken. The risk indicators we monitor have not yet detected any early warning signs. The Volatility Index (VIX) has risen slightly but remains below 30. The Merrill Lynch indicator related to U.S. financial market risk is also sending neutral signals. Even compared to March of this year, when the first wave of COVID-19 occurred, the figures are relatively stable. Reflecting these results, there is no need to adopt an overly pessimistic view of the stock market.

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