[Good Morning Stock Market] Global Stock Markets Spread New Coronavirus Fear... What Is the Impact on Korea?

[Image source=Yonhap News]

[Asia Economy Reporter Jihwan Park] The global stock markets collectively plunged due to fears of the spread of the novel coronavirus infection, known as China's 'Wuhan pneumonia.'

On the 27th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 28,535.80, down 453.93 points (1.57%) from the previous trading day amid fears of the spread of 'Wuhan pneumonia.' This marked the largest single-day drop for the Dow since October last year.

The Japanese stock market also closed down 2.03% compared to the previous trading day. As the number of novel coronavirus infection cases surged within China and signs of global spread appeared, funds have been flowing out of risk assets such as stocks.

◆ Seolhwa Choi, Researcher at Korea Investment & Securities: A short-term correction in the Chinese stock market is inevitable. It should be used as a buying opportunity from a mid- to long-term perspective. The adverse impact of the 2003 SARS outbreak on the Shanghai stock market lasted only one month. Specifically, during April, when the number of infected cases rapidly spread nationwide, the Shanghai Composite Index fell about 9% from its yearly high of 1631 points to 1485 points on May 13.

Going forward, as the virus spread is gradually brought under control and important policy authorities strengthen economic stimulus measures in 2020, the market is expected to stabilize. Also, unlike the second half of 2003, China is currently in a monetary easing cycle, so the possibility of market adjustments due to monetary or fiscal tightening after Wuhan pneumonia is low. From a mid- to long-term perspective, a strategy of phased buying in the Chinese market during corrections is recommended.

◆ Kyungmin Lee, Researcher at Daishin Securities: Fear of the infectious disease spreading worldwide is shaking the global stock markets. To limit contagion and spread, people are refraining from outdoor activities, which is dampening consumer sentiment and causing concerns that the impact will extend beyond tourism to global trade and the economy. For the time being, the Wuhan pneumonia issue is likely to keep global stock markets volatile. Considering that global markets are already wary of short-term overheating and valuation pressures, caution against increased volatility is necessary. What is noteworthy is the actual impact of infectious disease fears on the global economy and stock markets. Since 2000, global infectious disease scares have not changed the direction of the economy. Stock markets continued their existing trends after short-term volatility. Since the AIDS outbreak in 1981, there have been 13 infectious disease outbreaks worldwide. The stock market returns (global stock market basis) 1 month, 3 months, and 6 months after outbreaks were 0.44%, 3.08%, and 8.50%, respectively. Recently, global fundamentals have been recovering. The US-China trade agreement and global economic stimulus policies will further support this fundamental improvement.

◆ Sanghyun Park, Researcher at Hi Investment & Securities: Attention should be paid to the peak timing of infection transmission within China. As confirmed in previous infectious disease cases, epidemics have not acted as sustained negative factors for the economy and financial markets, so the current Wuhan pneumonia may also be a short-term negative factor. However, since the epicenter of this outbreak is China, it could significantly impact not only the domestic but also the global economy, forcing financial markets to closely monitor the situation for the time being, which will strengthen short-term safe-haven asset preferences. Above all, the Chinese economy has already been wounded by the prolonged US-China trade conflict, and if Wuhan pneumonia prolongs, it could deal a fatal blow to economic fundamentals. The key issue is how quickly the fear of Wuhan pneumonia subsides, which depends on when the number of infected cases in China will peak.