Growing Economic Recovery Concerns Amid COVID-19 4th Wave... "Stock Market Correction Inevitable"

[Asia Economy Reporter Song Hwajeong] As the number of COVID-19 confirmed cases rapidly increases, uncertainty over economic recovery grows, causing the stock market to fluctuate. It is analyzed that the fourth wave of COVID-19, driven by the Delta variant virus, has intensified amid the recent record-high stock prices, stimulating profit-taking desires.

Kim Jisan, Head of Kiwoom Securities Research Center, said, "The index has reached a new high, and it seems that the Delta variant virus is triggering profit-taking desires," adding, "We need to consider a period of adjustment until the spread of the Delta variant virus subsides."

Yoon Jiho, Head of Ebest Investment & Securities Research Center, also analyzed, "Although it is currently impossible to present an expected band, the market will decline further," and "The rapid surge of the Delta variant virus acted as a trigger in a situation where excessive bubbles were burdensome compared to valuation."

Short-term adjustments appear inevitable. Yoo Jongwoo, Head of Korea Investment & Securities Research Center, said, "Due to the spread of the Delta variant virus and strengthened quarantine measures, economic momentum is expected to weaken significantly, so the possibility of short-term adjustments should be kept in mind," adding, "We will maintain a neutral view for the time being." He further noted, "It is necessary to pay attention to domestic and international interest rate trends, and from an index perspective, it is important to watch whether the 3,170 support level, corresponding to a 12-month forward price-earnings ratio (PER) of 11, holds in the short term."

It is forecasted that the market will show a box range movement until the third quarter. Kim said, "Previously, adjustments were expected due to liquidity tightening and tapering concerns, but now the delay in economic recovery caused by the spread of the Delta variant virus is the reason for the adjustment, so it is too early to talk about the bottom," adding, "Until the third quarter, the market will likely show a box range movement due to external variables."

Although the possibility of economic retraction caused by the Delta variant virus is not high, in South Korea, where the vaccination rate is not sufficiently high, a delay in recovery in sectors such as services is inevitable. Kim Younghwan, a researcher at NH Investment & Securities, said, "The KOSPI fell on the 7th and 8th due to the resurgence of COVID-19, and global new confirmed cases turned to an upward trend in July due to the highly contagious Delta variant," adding, "In countries with high vaccination rates, deaths have not increased significantly, so the possibility of economic retraction caused by the Delta variant is not high." He further stated, "However, in South Korea, where the vaccination rate is not sufficiently high, strengthened quarantine measures and delayed recovery in the service sector are inevitable," adding, "Temporary adjustments and somewhat high volatility may accompany this, and reopening stocks are likely to underperform in the short term."

As concerns about the slowdown in economic recovery speed grow, major economic indicators to be announced in the future are expected to draw attention. Seo Sangyoung, a researcher at Mirae Asset Securities, said, "The key will be the real economy indicators of the U.S. and China to be announced next week," adding, "If they come out well, concerns about the slowdown in economic recovery speed can be alleviated, but if these concerns are not resolved, foreigners are likely to withdraw funds from South Korea."

There are also opinions that the impact of the Delta variant on the stock market will be limited. Han Jiyoung, a researcher at Kiwoom Securities, said, "The elevation of social distancing levels may negatively affect the investment sentiment of small and mid-cap stocks with a high proportion of domestic sales," adding, "However, expectations for the second-quarter earnings season remain valid, and considering that valuations are not in a highly burdensome range, the impact of the Delta variant negative factors on the stock market will be limited."

It is analyzed that attention should be paid to beneficiaries of interest rate downward stabilization and economic recovery. Park Seokhyun, a researcher at KTB Investment & Securities, explained, "Although the rapid increase in domestic COVID-19 confirmed cases is concerning, it is more likely to temporarily slow the pace of economic recovery centered on the domestic economy rather than reversing the recovery trend," adding, "If stock price adjustments continue due to concerns about domestic and international economic slowdown, it is necessary to increase the weighting of beneficiaries of interest rate downward stabilization such as batteries, internet/software, healthcare, and beneficiaries of continued economic recovery such as automobiles."

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