Investment Sentiment Frozen by Re-lockdowns Worldwide... Risk Assets Fall Simultaneously

Delta Variant Spread Dampens Investment Sentiment
Funds Flow into Safe Assets...US Treasury Yield Falls to 1.17%
KOSPI Drops for 3 Consecutive Days
"Resurgence Pressures Decline in Cyclical Stocks"

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Hwang Jun-ho] The turmoil in the international financial markets that began on the 19th (local time) in the New York stock market is due to the contraction of risk asset investment sentiment caused by the spread of the COVID-19 Delta variant, leading investments to flock to safe assets. There is also an assessment that instead of the sharp V-shaped recovery seen after COVID-19, an era of uncertain growth has begun.

Although U.S. President Joe Biden emphasized on the day marking his 6-month inauguration that the economy recorded the highest growth rate and claimed that "the economy has revived from the brink and there is no inflation concern," he could not prevent the financial market turmoil.

Brian Yabrow, an analyst at Edward Jones, explained, "The expansion of new infections due to the Delta variant and the reinstatement of indoor mask-wearing in the LA area are driving investors to flock to stocks proven to benefit from COVID-19."

◇ Investors betting on "economic recovery slowing down" = Meanwhile, the UK fully lifted COVID-19 restrictions on the same day, but the market weighed the possibility of delayed economic recovery. The U.S. issuing a travel ban alert against the UK on the day is also analyzed as a factor that heightened COVID-19 caution. The financial market is reflecting a scenario where countries impose re-lockdowns amid the spread of the Delta variant.

The continuously falling U.S. Treasury yields are considered indicators reflecting concerns about economic slowdown. On the day, the U.S. 10-year Treasury yield entered the 1.1% range.

Treasury yields reflect future economic growth and inflation. The U.S. Treasury yield rose from 0.9% at the beginning of the year to 1.7% amid concerns about inflation rising due to economic reopening, but recently it has been falling daily. This is because investment money anticipating economic slowdown has flooded in like a tide. It is also analyzed that major investors are selling overvalued stocks while the stock market hits record highs daily and buying bonds, reflecting the current market trend.

Jiwei Lenny Penn, portfolio manager at Mutual Asset Management, said, "The market is evaluating that the economy will slow down considerably over the next few weeks or months."

The U.S. consumer sentiment index for July, released last week, was 80.8, significantly below the market expectation of 86.3, which also fueled concerns about economic slowdown. The reason concerns about inflation rising while economic recovery slows are gaining strength is that inflation increases are feared to damage corporate profits.

Concerns about the slowdown in economic recovery are also affecting the hot commodity market. Reflecting the economic situation, the price of copper, called 'Dr. Copper,' fell by 1.4% on the London Metal Exchange on the day.

Mohamed El-Erian, chief economic advisor at Allianz, explained, "Technical adjustments and concerns about growth slowdown are simultaneously reflected, causing all asset classes to fall together."

On the other hand, there are claims that the Delta variant's impact is not significant and the economy will return to a recovery trend. Billionaire investor Bill Ackman, founder of Pershing Square, said in an interview with CNBC, "The Delta variant is not a serious threat to economic reopening," and added, "I will borrow as much money as possible at today's interest rates."

◇ KOSPI falls for the third consecutive trading day = The global stock market decline inevitably affects the Korean stock market. As of 10:02 a.m. on the 20th, the KOSPI recorded 3,231.81, down 12.23 points (0.38%), continuing its decline for the third consecutive trading day. While individuals and foreigners sold net amounts of 202.2 billion KRW and 66.8 billion KRW respectively, institutions bought a net 268 billion KRW, supporting the market. All of the top 8 market capitalization stocks were in decline. The KOSPI also closed down 1.00% the previous day.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Due to concerns about delayed economic recovery caused by the Delta variant, price decline pressure will be induced mainly on economically sensitive stocks such as materials and industrials, as well as stocks related to economic reopening." Seo Sang-young, a researcher at Mirae Asset Securities, also said, "The European stock market had its worst day since last October, and the U.S. stock market also closed with an expanded decline, which is a factor dampening investor sentiment."

However, Seo explained, "Unlike during the pandemic last year, the possibility of a full economic lockdown is low, and the sharp drop in international oil prices showed excessive volatility due to some supply-demand factors related to futures expiration dates. Considering these, the decline in the Korean stock market may be limited."

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