[Good Morning Stock Market] "Concerns Over Economic Slowdown Due to COVID-19... Watchful for Stimulus Measures Like Interest Rate Cuts and Supplementary Budgets"

[Asia Economy Reporter Oh Ju-yeon] Concerns about economic slowdown are rising due to global supply chain disruptions caused by the novel coronavirus infection (COVID-19).

On the 26th, KOSPI opened at 2064.07, down 39.54 points (1.88%) from the previous trading day due to concerns over the spread of COVID-19. Employees are working in the dealing room of Hana Bank in Jung-gu, Seoul. The won-dollar exchange rate started at 1216.5 won, up 6.2 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

According to the securities industry on the 27th, economic indicators from China and domestic export-import trends are scheduled to be released from the end of this month to early March. It is expected that these indicators will reflect the impact of COVID-19, raising the possibility of additional shocks to the market.

However, since countries are considering economic stimulus measures and discussions are ongoing domestically regarding interest rate cuts and supplementary budgets for COVID-19 response, it is analyzed that index adjustments may be limited.

◆ Sangyoung Seo, Kiwoom Securities Researcher = As COVID-19 shows a tendency to spread not only in Korea and Italy but also in Europe, South America, and the Middle East, the U.S. stock market closed mixed despite the inflow of rebound buying. This is expected to have a negative impact on the Korean stock market. The global spread of COVID-19 is anticipated to trigger an economic slowdown, which will negatively affect Korea, a country highly dependent on exports.

However, it is necessary to pay attention to the fact that various countries around the world are actively announcing stimulus policies. Ultimately, although there are concerns about economic slowdown due to global supply chain disruptions caused by COVID-19, the active announcement of stimulus policies can alleviate these concerns.

Meanwhile, on the 28th, President Moon Jae-in announced that he will visit the National Assembly to discuss the supplementary budget, raising expectations for Korea's economic stimulus policies and suggesting that index adjustments will be limited. It is also positive that the Bank of Korea is expected to cut interest rates at the Monetary Policy Committee, creating a synergy effect with the government's supplementary budget. Considering this, although concerns about corporate earnings deterioration due to the global economic slowdown persist in the Korean stock market, expectations for government stimulus policies in various countries are high, leading to an inflow of rebound buying. However, since negative factors are still being introduced, it is expected that a differentiated market by sector will continue for the time being rather than broad-based buying across the index.

◆ Hyojin Kim, KB Securities Researcher = The economic contraction caused by COVID-19 is expected to be concentrated in the first half of the year, with a return to the economic recovery trend confirmed at the end of last year after the second half. However, concerns are growing that the extent of economic contraction may increase as the number of confirmed COVID-19 cases spreads not only domestically but also in countries other than China. Production disruptions and service sector contraction due to COVID-19 were anticipated, but the actual economic indicators are slowing, increasing the likelihood of additional shocks to the financial market.

The most notable indicators are the February China Manufacturing Purchasing Managers' Index (PMI) (February 29), which is the first economic indicator released after the full onset of COVID-19, Korea's February export-import data (March 1), which is the first real economy indicator to confirm COVID-19's impact, and the U.S. February employment data (March 6), influenced by expectations of a Federal Reserve interest rate cut. Economic indicators from various countries are inevitably contracting, especially in sentiment indicators. In the U.S., although the indicator results are relatively robust, considering that the Economic Surprise Index remains at a high level, there is an increased possibility that economic indicators falling short of financial market expectations will negatively affect risk assets.

◆ Inhwan Ha, Meritz Securities Researcher = The greatest interest regarding the direction of the domestic stock market currently is 'foreign investor demand.' Individual investors continue net buying, and institutions have switched to net buying as the stock market plunged. However, the selling pressure from foreign investors has recently intensified, causing fluctuations in the stock market.

Foreign investors have sold about 800 billion KRW daily in the KOSPI over the past three trading days, totaling approximately 2.5 trillion KRW. However, in the futures market, there are signs of a possible directional shift. During the same period (the last three trading days), they have net bought about 260 billion KRW worth of KOSPI 200 futures.

Considering the possibility of an additional 0.5 to 1.0 trillion KRW sell-off in the spot market, this corresponds to about one trading day’s volume given the recent selling intensity. It is judged that it is time to consider the possibility of foreign funds gradually flowing back into the domestic stock market.