[Good Morning Stock Market] US Stocks Fall Over 1% Amid COVID-19 Fears..."High Possibility of Interest Rate Cut"

[Asia Economy Reporter Minji Lee] The U.S. stock market recorded a decline of over 1% as fears of the novel coronavirus infection (COVID-19) spread. This was due to major economic indicators falling as a result of the COVID-19 impact. On the 23rd at the New York Stock Exchange (NYSE), the Standard & Poor's 500 (S&P 500) index closed down 35.48 points (1.05%) at 3,337.75, and the Nasdaq index plunged 174.37 points (1.79%) to close at 9,576.59.

In South Korea, additional declines in the index are expected due to the sharp increase in COVID-19 patients and the anticipated economic contraction. The securities industry expects that, given the inevitable economic damage, accommodative policy support and early supplementary budget formulation will be implemented.

[Image source=AP Yonhap News]

◆ Sungwoo Park, Researcher at DB Financial Investment = The prolonged COVID-19 situation could act as a significant headwind for Asian countries. The contraction of trade activities with China and the sharp decline in the number of Chinese entrants inevitably have a negative impact on the economic activities of Asian countries.

As the spread of COVID-19 inevitably damages the economies of Asian countries, major institutions are revising growth forecasts downward. Accordingly, since February, when COVID-19 began spreading beyond China, some Asian central banks (Thailand, the Philippines, China, Indonesia) have proactively lowered their benchmark interest rates.

South Korea is also expected to implement accommodative policy support. This is because the proportion of intermediate goods exports to China is large, posing risks not only to exports and production but also increasing the likelihood of domestic demand contraction due to the sharp rise in domestic infection cases. The cumulative number of infected individuals, which was 30 at the beginning of last week on the 17th, surged more than 20-fold to over 600 in just one week. As of the 20th, despite an increase in working days, exports to China decreased by 3.7% compared to the same month last year. The government is expected to promptly formulate an additional supplementary budget in the first quarter, revise economic forecasts downward, and lower the benchmark interest rate.

◆ Taedong Oh, Researcher at NH Investment & Securities = The sluggish trend in the stock market due to the impact of COVID-19 is not expected to be prolonged. This is because the number of new confirmed cases is decreasing in China, the epicenter of the crisis, and South Korea is also judged to have the capacity to respond to the crisis.

The keywords for the stock market in March are liquidity expansion policies by various countries and first-quarter earnings. The KOSPI was expected to enter a turnaround phase in the first quarter this year, but this is likely to be postponed to the second quarter due to the COVID-19 situation. Given that IT companies' investments are continuing mainly in the U.S., improvements in the performance of Korean IT companies are expected in the first quarter. The effect of improved first-quarter earnings is also expected to continue into the second quarter. Expectations for China's stimulus measures are also anticipated to expand.

Furthermore, market attention is expected to focus on the U.S. Federal Reserve (Fed). The Fed is expected to halt asset purchases during the second quarter but may introduce aggressive monetary policies depending on the situation. Given that even the U.S. economic recovery outlook is not very optimistic, the importance of the Fed is expected to increase further.