[Good Morning Stock Market] Will Foreign Investor Demand Concerns Grow Amid Delta Variant Spread?

Concerns Over Delta Variant Spread
Global Stock Markets Decline, Increased Preference for Safe Assets Like Dollar
Opinions Suggest Continued Interest in Travel and Aviation Sectors

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] As concerns over the Delta (Indian) variant virus grow, global stock markets are showing a downward trend. With increased preference for safe-haven assets, the Japanese yen and the US dollar are strengthening, while commodity markets such as international oil prices are sluggish. If investors' preference for safe assets rises, it could negatively impact foreign capital flows, so the domestic stock market on the 29th is expected to show a pause for breath.

Sangyoung Seo, Researcher at Mirae Asset Securities = Small and mid-cap IT and semiconductor sectors strong in the US on MWC expectations

On the 28th (local time), the Dow Jones Industrial Average, a major US stock index, fell 0.4% as the spread of the Delta variant virus caused travel, leisure, airline, and energy sectors to show weakness. Due to the rapid spread of the Delta variant, contact-related stocks are weak while non-contact-related stocks are strong, indicating differentiation in the financial market. Most commodities are being sold off, and the preference for safe-haven assets such as the dollar and yen has expanded.

However, attention should be paid to the upward trends driven by individual company factors. The US stock market showed strength in small and mid-cap IT sectors due to expectations for this year's International Supercomputing Conference (ISC) and Mobile World Congress (MWC). The semiconductor sector also showed strength, with the Philadelphia Semiconductor Index rising 2.52%. Additionally, expectations for the passage of infrastructure investment bills are also expected to drive gains in individual stocks.

The announcement by a US federal court dismissing the Federal Trade Commission (FTC)'s antitrust lawsuit also had a positive impact on large tech stocks. Although the court dismissed the lawsuit, it did not dismiss the case itself, so additional lawsuits may be filed. However, as antitrust issues that had suppressed large tech stocks weaken, further gains are expected.

Sehee Seo, Researcher at Korea Investment & Securities = Time to focus on travel, entertainment, airlines, cruises, casinos, hotels, and resorts

Recently, concerns over the spread of the Delta variant virus and discussions of lockdowns have caused stocks in sectors related to the resumption of economic activities to continue their weak performance. While it is true that uncertainty about the timing of economic normalization has increased, it is also clear that as countries lift restrictions and travel bans are eased, the trend of resuming economic activities will continue. It is time to refocus on sectors related to economic reopening such as travel, entertainment and live events, airlines, cruises, casinos, hotels, and resorts.

In fact, the airline industry is already sensing these changes. Southwest Airlines in the US recorded a net loss of $3.1 billion after the spread of COVID-19 last year but succeeded in turning a profit in the first quarter of this year. According to the US Transportation Security Administration (TSA), as of the 26th, the number of air travelers in the US in June was about 4,875,000, a 294% increase compared to the same period last year. With travel spending expected to increase by 79% compared to 2020 by 2024, expectations for earnings recovery in travel, leisure, and airline sectors are also high.

Jaeseon Lee, Researcher at Hana Financial Investment = Emphasizes temporary inflation outlook

Given the low contribution of cyclical factors to inflation, the outlook for temporary inflation is emphasized. Cyclical factors include economic-related items such as employment conditions, while non-cyclical factors reflect temporary elements specific to certain industries regardless of the economic cycle. It is analyzed that recent Medicare costs and used car price increases due to COVID-19 have influenced inflation through non-cyclical factors.

Attention should be paid to the fact that non-cyclical factors and one of the COVID-19 sensitive items, the average price of used cars in the US, are stabilizing. One of the representative used car price indicators, the ‘Manheim Used Vehicle Value Index,’ showed a sharp rise since the beginning of the year but recorded 203.6 points in mid-last month, only slightly up from 203 points the previous month. Employment indicators that could support price increases are not yet clearly improving. Unlike the lower and upper classes, the wage growth rate of the middle-educated population is also stagnating.

The fact that expectations for US economic growth this year are passing their first peak also lowers the possibility of early tightening. The ‘Daily News Index’ by the Federal Reserve Bank of San Francisco, which indicates market sensitivity to economic news, has been slowing since mid-May.

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