[Weekly Market Outlook] Stock Market Trends Continue... Untact and IT Sectors to Lead

Published 26 Apr.2020 16:08(KST)

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] This week, the domestic stock market is expected to be led by the IT sector, including untact (non-face-to-face) industries, amid a stock-specific market trend.

Last week (20th-24th), the domestic KOSPI market experienced fluctuations due to concerns over the prolonged economic impact of the novel coronavirus infection (COVID-19), rumors about the critical condition of North Korean Supreme Leader Kim Jong-un, and negative oil prices, causing the index to fall below the 1900 level again. According to the Korea Exchange on the 26th, the KOSPI closed at 1889.01 points, down 25.52 points (1.33%) from the previous week. Foreign and institutional investors net sold 1.3995 trillion KRW and 1.3078 trillion KRW respectively, while individual investors net bought 2.6007 trillion KRW.

This week, the KOSPI is expected to move between 1850 and 1950 points as the IT sector’s leadership revives amid a stock-specific market trend. Kim Byung-yeon, a researcher at NH Investment & Securities, explained, “Although the number of confirmed COVID-19 cases in the US and Europe has recently decreased, this is a natural phenomenon resulting from strong behavioral restrictions. It is important to see whether confirmed cases decrease through private autonomous efforts after phased easing of behavioral restrictions and whether economic activities resume smoothly.”

He added, “Currently, the domestic stock market is undergoing a stock-specific market trend similar to 2016,” and analyzed, “If the increase in China’s mobile phone sales leads to the realization of deferred demand for mobile phones in the second half of the year, the long-term paradigm of untact IT service facility investment will be reinforced, and IT-centered leadership is expected to revive.” Researcher Kim forecasted, “Initially, changes in investment sentiment by sector will appear due to gradual increases in deferred demand,” and predicted, “The sequence is expected to be from reclusive consumption to revenge consumption such as shopping, restaurants, mobile phones, and home appliances, followed by active consumption such as travel, concerts, and lodging.”

Regarding the possibility of a market recession, the analysis suggests it is relatively low. Kim Yong-gu, a researcher at Hana Financial Investment, said, “Unlike in the past when global economic and policy uncertainties triggered simultaneous market recessions in May, this May is likely to be a period of policy momentum baton passing from the US Federal Reserve (Fed) to China’s Two Sessions. The phased lifting of US mobility restrictions around mid-May is likely to serve as a catalyst for the revival of global deferred demand and investment.” He explained, “Considering the current market’s supply-demand environment, including individual investors’ buying momentum and the 10.7 trillion KRW market stabilization fund, the likelihood of pessimism materializing in May is minimal.”

However, while a favorable liquidity environment is expected to be maintained and global economic activities to resume, allowing for additional valuation increases, some point out that the room for further gains may not be large. Park Seok-hyun, a researcher at KTB Investment & Securities, advised, “We must also consider that rapidly declining corporate earnings forecasts in Korea and the US will exhaust the potential for further valuation increases,” and added, “For a sustained upward trend in stock prices, it will be necessary to see a recovery in upward revisions of corporate earnings forecasts.”