[Good Morning Stock Market] Economic Indicators After COVID-19 Fear... Possibility of Volatility Expansion Reemergence

[Asia Economy Reporter Oh Ju-yeon] Recently, the domestic stock market has shown a favorable trend, successfully achieving a V-shaped rebound following the fear of the novel coronavirus infection (COVID-19). However, experts explain that this rebound is a technical one, resulting from the easing of concerns that had peaked due to COVID-19. Going forward, it is expected to be more important to verify how much the actual fundamentals (corporate earnings) have been shaken rather than psychological factors related to COVID-19.

◆ Seosangyoung, Kiwoom Securities Researcher = On the 17th (local time), European stock markets rose, supported by the Chinese government's economic stimulus policies. However, the fact that defensive sectors such as telecommunications and utilities led the rise is not positive for the Korean stock market. Additionally, the sharp decline in semiconductor-related stocks such as ASM International (-3.49%), AMS (-4.83%), and Dialog (-2.97%) is negative.

The decline in the European semiconductor sector is presumed to be due to the U.S. government's announcement of new trade policies restricting China's access to U.S. semiconductor equipment. In particular, with the U.S. policy change, chip manufacturers must obtain special licenses if they intend to produce chips for Huawei using U.S. equipment, highlighting the renewed focus on the U.S.-China trade dispute. Meanwhile, this amendment is noteworthy as it could cause disruption not only to semiconductor equipment sectors like AMAT but also to the global supply chain.

Although the Chinese government continues its economic stimulus policies, there is an analysis that the economy is still insufficiently activated. Moody's forecasts that global growth will be downgraded by about 0.2 percentage points due to COVID-19, and other investment firms expect that if the global supply chain disrupted by COVID-19 is not contained within the first quarter, further downward revisions of growth rates will follow.

As concerns about economic slowdown increase, the fact that European stock markets showed strength mainly in defensive sectors is negative. Considering this, the Korean stock market is likely to see profit-taking selling. Furthermore, Apple's warning about supply reductions and weak demand in China due to COVID-19 is also negative.

◆ Kim Yong-gu, Hana Financial Investment Researcher = Unlike in 2019, the trend of net inflows into global sector funds in 2020 shows that funds are generally flowing in evenly. However, in the case of IT sector funds, the net inflow as of February has already reached $7.2 billion, exceeding last year's annual net inflow of $6.9 billion. This is why it feels like funds are concentrating in the IT sector.

For funds to flow evenly not only by sector but also by style and region, the yuan exchange rate is important. Currently, U.S. economic indicators are better than China's, and the consensus is that the People's Bank of China will cut interest rates faster than the Federal Reserve. Therefore, the yuan exchange rate has also stagnated (around $=7 yuan).

Looking ahead, to defend against the shock caused by COVID-19, China is highly likely to add fiscal expansion policies to the currently announced monetary easing policies around the National People's Congress (mid-March). In the past, China has significantly increased fiscal spending to defend growth rates during phases when growth rates declined, so a similar approach is expected this time as well.