Two Key Conditions for a Trend Rebound in the Domestic Stock Market: 'Economic Expansion + Inflation Easing'

Improving the COVID-19 Situation is Key... Economy and Inflation Both Affected
Economic Momentum Could Rebound if COVID Spread Subsides
Russia-Ukraine Conflict Also Impacts Inflation

[Asia Economy Reporter Hwang Yoon-joo] After the Lunar New Year holiday, the domestic stock market is expected to rebound only within a short-term box range. This is because it is difficult to expect economic expansion and inflation easing for a trend reversal.

Ha Gun-young, a researcher at Shinhan Financial Investment, stated, "Economic expansion and easing of tightening concerns through price stability, which can drive a trend rise in the (domestic stock market), are not immediately confirmed."

Researcher Ha explained, "For economic momentum to improve, the COVID-19 situation needs to calm down," adding, "Fortunately, in some advanced countries such as the United States and Europe, the number of COVID-19 cases has peaked, and economic activity is recovering."

He continued, "As we move from mid to late February, COVID-related uncertainties are rapidly weakening in most regions, so economic momentum improvement is expected," and "Economic momentum rebound may be possible as early as February economic indicators."

The most important variable is inflation (price increase). Researcher Ha analyzed, "The price adjustments caused by steep tightening concerns are expected to be partially reversed," but "economic expansion and price stability that can drive a trend rise through easing of tightening concerns are not immediately confirmed."

He added, "There is a time lag until the resolution of upward price risks that can ease tightening concerns," and "Meaningful relief of upward price (inflation) pressure is likely only in the second quarter, when mass distribution of COVID-19 treatments is expected." This is because the COVID-19 crisis caused supply chain disruptions and labor market supply-demand deterioration, both of which affected inflation.

Researcher Ha also pointed out that the rise in raw material prices due to geopolitical instability such as the Russia-Ukraine conflict is a factor to watch. If the conflict intensifies, it is highly likely to act as a risk factor for energy, raw materials, financial markets, and the real economy. As the Ukrainian government reiterated its firm stance not to yield to Russia's military threats, the government formed an 'Emergency Response Task Force (TF) for the Ukraine Situation' on the previous day (4th) and discussed future response plans.

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