[Good Morning Stock Market] New York Stocks Plunge Due to Delta Variant Spread... "Korean Stock Market Shocked but Decline Limited"

Domestic Stock Market: Pressure on Prices to Fall for Cyclical and Economic Reopening Stocks

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[Asia Economy Reporter Park Jihwan] As concerns grow that the global growth rate may slow due to the spread of the COVID-19 Delta variant, the U.S. New York stock market fell sharply, drawing attention to the potential impact on the domestic stock market.

On the 19th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,962.04, down 725.81 points (2.04%) from the previous session. The Standard & Poor's (S&P) 500 index also plunged 68.67 points (1.59%) to close at 4,258.49. The tech-heavy Nasdaq index fell 152.25 points (1.06%) to end at 14,274.98. This marked the fifth consecutive trading day of decline, the longest losing streak since October last year.

The slowdown in global growth prospects due to the spread of the Delta variant is interpreted as having dampened investor sentiment. However, experts predict that the domestic stock market will inevitably decline due to the impact of foreign investors' weakened investment sentiment. In particular, on this day, the domestic stock market is expected to face significant downward pressure mainly on cyclical stocks such as materials and industrials, as well as stocks related to economic reopening, so a conservative investment approach is advised.

◆ Seosangyoung, Researcher at Mirae Asset Securities = The KOSPI is expected to start down about 1%. European stock markets experienced their worst day since last October, and the U.S. stock market also closed with an expanded decline, which is a factor dampening investor sentiment. In particular, the small- and mid-cap indices have fallen more than 10% intraday from their previous highs, entering a correction phase, weakening risk asset preference, which is expected to continue to weigh on foreign demand today as well. Additionally, with the WTI futures expiration date approaching, international oil prices plunged nearly 8% due to the OPEC+ agreement to reduce the scale of production cuts and concerns over economic recovery slowdown caused by COVID-19, adding further pressure on foreign demand.

However, even if COVID-19 resurges, unlike during last year's pandemic, the likelihood of a full-scale economic lockdown is low. Also, the sharp drop in international oil prices was partly due to supply-demand factors related to the futures expiration date, causing excessive volatility. Considering these factors, the Korean stock market's decline is expected to be limited. Taking this into account, the Korean stock market is likely to start down about 1% but narrow losses amid expectations for the earnings season.

◆ Park Sanghyun, Researcher at Hi Investment & Securities = The credit risk caused by the Delta variant virus is limited, and the negative impact on the economy and financial markets is also expected to be limited. Despite concerns over the spread of the Delta variant virus, the reason why financial markets, including the stock market, remain stable is primarily due to a learning effect. Except for the first wave of the pandemic in March last year, there was no significant turmoil in financial or credit markets during the second and third waves. While economic stimulus measures and vaccine expectations played some role, there was also an expectation that the COVID-19 resurgence would not halt economic activities as it did during the first wave. Ultimately, the resurgence caused by the Delta variant virus is believed to only slightly delay the timing of economic normalization and not significantly harm the economic recovery cycle.

Furthermore, the uncertainty caused by the Delta variant virus has raised expectations that the Federal Reserve and other major countries may delay monetary policy normalization, which has contributed to stability in both financial and credit markets. The background behind Chairman Powell's indication that tapering and monetary policy normalization will not be rushed despite inflation risks appears to be significantly influenced by the COVID-19 situation.

◆ Han Jiyoung, Researcher at Kiwoom Securities = The Korean stock market is expected to show a downward trend as the sharp decline in the U.S. stock market expands risk-averse sentiment within the Asian region. Since concerns over delayed economic recovery due to the Delta variant were the main reason for the U.S. stock market plunge, on this day, the domestic stock market is also expected to face downward pressure mainly on cyclical stocks such as materials and industrials, as well as stocks related to economic reopening.

Also, considering that the Russell 2000 index, which focuses on U.S. small- and mid-cap stocks, experienced a relatively sharp decline, attention should be paid to the possibility of increased profit-taking in domestic small- and mid-cap stocks, which have recently shown stronger price gains compared to large caps. However, since the Korean stock market already experienced a decline due to the same issue in the previous trading session, the additional decline is expected to be limited. Given the overall global contraction in investor sentiment, a conservative market approach is deemed appropriate.

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