[Good Morning Stock Market] COVID-19 Fear Spreading to the US and Europe... Concerns Over Increased Volatility

[Asia Economy Reporter Oh Ju-yeon] While the spread of the novel coronavirus infection (COVID-19) shows some stagnation domestically, it is spreading simultaneously and rapidly in the US and Europe, leading to the assessment that we have effectively entered the pandemic stage (a global outbreak of infectious disease). Accordingly, global stock markets are also fluctuating, and it is analyzed that increased volatility in the domestic stock market is inevitable for the time being. However, given that the KOSPI has already undergone a correction, if the speed of COVID-19 spread passes its peak, the KOSPI is expected to attract attention in terms of fundamental stability.

◆ Seo Sang-young, Kiwoom Securities Researcher = The Korean stock market is expected to see selling pressure early in the week due to the sharp increase in COVID-19 cases in the US, but the decline is expected to narrow later in the week due to expectations of stimulus policies from China and the European Central Bank (ECB). The expansion of COVID-19 testing in the US, which may increase confirmed cases, is also a negative factor. Additionally, the expiration of futures and options on Thursday could lead to increased volatility due to foreign investor flows.

However, considering the high possibility of liquidity supply through monetary policy measures such as the 'Targeted Longer-Term Refinancing Operations (TLTRO)' by the ECB, there is a strong expectation of a rebound buying trend later in the week. Overall, the Korean stock market is expected to experience increased volatility in the early to mid-week, followed by a rebound in the latter part of the week.

Meanwhile, attention should also be paid to the US Democratic presidential primary. On the 10th, six primaries including Michigan will take place. It is positive that Joe Biden has high support in Michigan, where the most delegates are selected. However, in places like Washington, Bernie Sanders has high support, so it is a period to watch closely. Especially since major candidates have withdrawn, leading to a competition between Joe Biden and Bernie Sanders, the results of this day are particularly important.

Considering these changing factors, the KOSPI is expected to fluctuate around 2000 to 2100 points, and the KOSDAQ index around 600 to 650 points.

◆ Lee Kyung-min, Daishin Securities Researcher = The global stock market will continue to experience sharp ups and downs accompanied by volatility for the time being. This is because the spread of COVID-19 is ongoing, and related issues are likely to sway investor sentiment. However, considering the strengthening of global policy coordination and the injection of fiscal policy accordingly, the downside rigidity of the global stock market is judged to be strengthening.

While the global stock market suffers from COVID-19 spread and concerns over the economy and earnings, the KOSPI is expected to show a relatively stable trend. This is for the same reason that the Chinese stock market showed a differentiated upward trend since early February.

First, the global stock market, especially the US market, continued its record-high rally until February 19. In contrast, the Chinese stock market peaked on January 14, and the Korean stock market on January 20, after which they showed weakness. The Chinese and Korean stock markets entered a correction phase earlier than the US, and given the large correction, it can be seen as having pre-reflected negative factors.

Second, there are signs that the rapid increase in new COVID-19 cases in Korea is calming down. The daily new confirmed cases, which surged to 813 at the end of February, have decreased to around 500 in March. It is true that it is difficult to be confident about future trends. However, considering that the Shincheonji full investigation has been completed and the spread outside Daegu and Gyeongbuk regions is limited, the speed of increase in new confirmed cases is expected to gradually slow down. The Chinese stock market has also continued its rebound after the number of new confirmed cases passed its peak in early February.

Third, the impact on semiconductor and KOSPI earnings is expected to be limited due to the rise in semiconductor prices and the won-dollar exchange rate. Despite the impact of COVID-19, semiconductor prices are rising. This is due to increased server demand and purchasing by companies to secure inventory. Considering the exchange rate effect as well, semiconductor earnings in 2020 are likely to be better than the current fear sentiment suggests. The semiconductor sector's contribution to KOSPI earnings improvement in 2020 reaches 47%. Stability in KOSPI earnings can also be expected.

The short-term sharp fluctuations in the KOSPI are seen as an opportunity to increase weighting. The strategy of buying on corrections and making staggered purchases is maintained for promising sectors in 2020 and existing leading stocks such as semiconductors, internet, and secondary batteries.