[Good Morning Stock Market] COVID-19 Vaccine Development Approaching... but "Caution Against Optimism"

On the 11th, the KOSPI opened at 2,459.50, up 6.67 points (0.27%) from the previous day. (Photo by Yonhap News)

[Asia Economy Reporter Kum Boryeong] The KOSPI index has surpassed its year-to-date high, driven by a rebound in value stocks, according to analysis. This is attributed to gradual progress in the development of treatments and vaccines for the novel coronavirus disease (COVID-19). However, warnings remain regarding vaccine optimism due to the ongoing spread of COVID-19.

◆ Yeshin Lee, Researcher at Shinhan Financial Investment = The KOSPI index has broken through its year-to-date high and is approaching the 2,500 level. The visible progress in COVID-19 treatments and vaccine development is erasing the political uncertainties that lingered after the U.S. presidential election. Alongside solid third-quarter earnings reports, the confirmed improvement in economic indicators despite the resurgence of COVID-19 in October supports the continuous restoration of damaged fundamentals.

The KOSPI's rise in November is being led by value stocks. Based on cumulative returns in November, sectors with more than 50% of stocks outperforming the index include shipbuilding, banking, machinery, energy, retail/distribution, transportation, and chemicals. More than half of the stocks within these sectors have recorded better returns than the index.

Looking at individual stocks' past price performance shows a similar trend. The number of KOSPI stocks hitting 60-day highs increased from 17 at the end of October to 98 as of November 10, with 45% of these belonging to the energy, materials, and industrial sectors, excluding chemicals. By sector, banks account for over 50%, while energy and transportation exceed 30%. Both in absolute and relative terms, the sectors currently leading the market are concentrated in value stocks.

The recent tilt toward value stocks is supported by expectations of treatment development that can offset the negative impact of COVID-19 resurgence amid ongoing liquidity supply policies, and a return to a pre-untact (contactless) society. Considering the lagging nature of changes in corporate earnings consensus, it is necessary to acknowledge that the expanded optimism in November has not yet been fully reflected.

Between November and December, as expected, news of COVID-19 vaccine development and approval by health authorities, along with favorable manufacturing and economic indicators from major countries such as the U.S. and China, will continue to sustain interest in value stocks.

◆ Sangyoung Seo, Researcher at Kiwoom Securities = The U.S. stock market recently saw strong buying interest in large technology stocks that had sharply declined, leading to a significant rise in the Nasdaq. However, sectors that had previously performed well due to vaccine development expectations?such as leisure, industrials, commercial real estate, and consumer-related stocks?showed weakness, reflecting a differentiated trend.

Meanwhile, remarks by Christine Lagarde, President of the European Central Bank (ECB), announcements from the Centers for Disease Control and Prevention (CDC), and the surge in COVID-19 cases in the U.S. fueled weakness in so-called contact-related stocks. The U.S. stock market recently experienced a sharp decline in untact-related stocks and strength in contact-related stocks, but on November 11 (local time), the opposite movement occurred. This is presumed to be due to a mix of rebound buying and profit-taking, resulting in a mixed performance. Furthermore, the fact that even if a vaccine is developed, production and distribution will take considerable time also influenced the market. Meanwhile, the U.S. reported a seven-day average of 119,171 new COVID-19 cases per day, with total cases exceeding 10 million, showing an uncontrollable spread that encouraged rebound buying in untact-related stocks. Additionally, many public health officials warned that the U.S. has not yet experienced the most difficult phase of the outbreak and expect it to last for the next three to four months, which also had an impact.

ECB President Lagarde stated, "While the latest news on vaccines is encouraging, the virus is spreading too rapidly for there to be an immediate economic impact," issuing a warning against 'vaccine optimism.' Although she suggested further reductions in bank lending costs and adjustments to pandemic-related asset purchase programs, which did not burden the index, her remarks weakened some expectations that economic recovery could accelerate after vaccine development. Moreover, the CDC announced that daily COVID-19 deaths are rapidly increasing and are expected to rise significantly over the next four weeks. According to the Institute for Health Metrics and Evaluation (IHME), which provides COVID-19 forecasts to the White House, about 2,000 deaths per day are projected this winter, indicating that the spread of COVID-19 will continue. In particular, the limited availability of hospital beds toward the end of the year, which could accelerate the death toll, further dampened expectations for 'vaccine optimism.'

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