[Good Morning Stock Market] 'Omicron Spread' Shuts Down Europe Again... What Is the Impact on the Domestic Stock Market?

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[Asia Economy Reporter Park Jihwan] Due to the spread of the COVID-19 variant virus 'Omicron,' the Netherlands has entered a full lockdown for the first time. London, UK, has declared a major incident, while France and Germany have mandated a two-week quarantine for travelers from high-risk countries.

Recently, as the Omicron variant rapidly spreads mainly across Europe, the number of European countries considering lockdown measures is increasing. Attention is focused on how these lockdown moves by various countries due to the Omicron spread will affect the domestic stock market. Domestic market experts evaluate that unless a full shutdown like in March last year occurs, the undervalued valuation attractiveness of the Korean stock market will be highlighted, and foreign investor-driven supply and demand improvements are expected.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= The U.S. stock market showed weakness amid increased volatility, which burdens the Korean stock market. Especially, with the rapid increase in new Omicron cases centered in the Eurozone and warnings from President Biden, concerns about economic contraction have risen, acting as a factor dampening investor sentiment. Additionally, the fact that international oil prices fell more than 2% ahead of Monday's expiration date, along with rising dollar and gold prices reflecting increased safe-haven demand, is also a burden. However, despite increased volatility in individual stocks due to futures and options expiration, the small- and mid-cap index Russell 2000 rose 1.0%, which is positive.

Considering this, the Korean stock market is expected to start with a slight rise, and attention should be paid to foreign investor supply and demand in light of hawkish remarks from Federal Reserve officials. If buying continues as it did last Friday, contrary to concerns, the strength of the Korean stock market could expand. In particular, attention should be paid to whether foreign investor inflows occur centered on the semiconductor sector, anticipating the solid earnings announcement of Micron expected after the U.S. market closes on Monday.

◆Seheon Kim, Researcher at Kiwoom Securities= Due to the full-scale spread of the Omicron variant centered in the UK and Europe, the Netherlands has decided to strengthen lockdown measures until mid-January. Germany and France are imposing restrictions on arrivals from the UK. In the U.S., President Biden’s national address on Omicron is scheduled for the 21st, and market caution is increasing over whether additional quarantine strengthening measures will be announced.

Although quarantine intensity may temporarily increase until the end of the year, what the stock market should focus on is whether a full shutdown like in March last year will occur. The policy capacity of the government and central bank is not as strong as it was then. If economic activity stops again, the risk of permanent economic loss could become a reality. Furthermore, considering that most economic agents have become more inclined to choose a with-COVID-19 approach after nearly two years of prolonged pandemic, the probability of major governments implementing a full shutdown is slim.

Although it is a period of high external uncertainty, considering the above, excessive anxiety leading to selling should be avoided. Rather, attention should be paid to the fact that the supply and demand conditions of foreign investors investing in the domestic stock market are improving due to the excessive neglect of the KOSPI compared to major countries, limited additional won depreciation, and a shareholding ratio lower than the historical average. The background of foreign investors’ net buying includes expectations of semiconductor industry improvement and better-than-expected November Korean export performance. Therefore, Korea’s December export data and Micron Technology’s earnings results, which can be confirmed on the 21st, are expected to determine the momentum of foreign investors’ net buying.

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