November Stock Market Volatility Peaks, What Are the Response Strategies?

Impact of US Presidential Election and COVID-19 Resurgence
KOSPI Falls Below 2270 Last Month
Domestic Situation Better Than Overseas Noted
Using Correction Phase as Investment Opportunity

[Asia Economy Reporter Song Hwajeong] Stock market volatility is increasing due to the U.S. presidential election and the resurgence of COVID-19. In November, attention must be paid to risk management amid various external factors, but some analysts suggest that the correction phase could instead be used as an investment opportunity.

According to the Korea Exchange on the 2nd, the KOSPI200 Volatility Index (VKOSPI), known as the Korean version of the fear index, closed at 31.97 points on the 30th of last month, up 23.44% from the previous day. This is the first time in four months since the end of June that it has surpassed 30 points, indicating that stock market volatility is expanding again.

This week, volatility is expected to increase further due to the resurgence of COVID-19 and the U.S. presidential election just one day away. Lee Kyungmin, a researcher at Daishin Securities, said, "Noise that could amplify market volatility may peak during the first and second weeks of this month," adding, "While COVID-19 is not easily calming down, the strengthening of economic lockdown measures in major European countries will stimulate economic uncertainty, and the U.S. election scheduled for the 3rd is likely to trigger short-term uncertainty regardless of the outcome." Even if fundamental changes such as economic indicators and corporate earnings trends are positive, investment sentiment and supply-demand can be significantly shaken during periods of amplified noise.

With increased volatility, the KOSPI closed at 2,267.15 on the 30th of last month, down 2.56% from the previous day, falling below the 2,270 level. Lee explained, "Last week, the KOSPI fell below the 2,270 level, which was considered an important support line at the previous low," and added, "In the short term, additional volatility expansion and price correction due to external uncertainties should be kept in mind." The KOSPI fell 2.6% compared to the end of the previous month, marking the first monthly decline since the panic market caused by COVID-19 in March.

In the context of increased volatility, factors such as the loss of leadership by leading stocks and the weakening buying power of individual investors, who were the main supply-demand players, further increase the possibility of a short-term correction. According to Yuanta Securities, the market capitalization ratio of the seven BBIG (Bio, Battery, Internet, Game) stocks that led the market in the first half of the year in the KOSPI200 reached a peak of 21.1% on August 27 but has rapidly declined since then. As of the end of last month, their market capitalization ratio dropped to 18.3%, the lowest level since early June.

The buying power of individual investors, who have led the market so far, has also weakened significantly since October. The average daily trading value of the KOSPI last month fell to about 10.8 trillion won, and the individual trading ratio dropped to the 64% range, marking the lowest levels in both trading value and trading ratio since May. The average daily trading value of the KOSPI was 16.2 trillion won and 14.2 trillion won in August and September, respectively. The individual trading ratios were 70.6% and 71.2%. Last month, individuals net bought only 1.27 trillion won, the smallest monthly scale since the beginning of the year. Kim Kwanghyun, a researcher at Yuanta Securities, said, "Whenever leading stocks lose their leadership, corrections have occurred without exception," adding, "When external factors occurred, the KOSPI plunged, and when earnings were stable without external factors, it showed a pattern of rising again after a short-term correction. Although earnings are expected to stabilize in the future, it is impossible to predict whether external factors will occur."

The domestic situation is evaluated positively as it is better than overseas. Lee said, "Korea is once again attracting attention due to the resurgence of COVID-19," and assessed, "Korea quickly suppressed the resurgence of COVID-19 and minimized the economic shock." He added, "With strong semiconductor and automobile exports and consecutive earnings surprises, upward revisions of profit forecasts are clear. Considering the 12-month forward return on equity (ROE), the appropriate price-to-book ratio (PBR) level is around 2,170 points, so it is necessary to respond from the perspective of increasing weight when the KOSPI is below 2,200 points."

Researcher Kim also said, "COVID-19 is not well controlled in the U.S., and the recent surge in cases in Europe seems more serious," adding, "In contrast, although some economic activities are restricted in Korea, COVID-19 is relatively well controlled, and the recent won appreciation is also acting as a factor that increases the attractiveness of the Korean stock market to foreigners."

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