[Good Morning Stock Market] KOSPI Jumps to 1820 Level... First Mission of Recovering Losses Accomplished, What's Next?

[Asia Economy Reporter Oh Ju-yeon] The KOSPI, which had plunged to the 1400 level due to the novel coronavirus infection (COVID-19), completed a 'V'-shaped rebound by soaring about 400 points to the 1820 level in just over two weeks. Opinions are divided on the domestic stock market. Although the impact of COVID-19 inevitably affects the performance of domestic companies, the market's sharp rise suggests that further declines are also possible. However, the first rebound has been successfully completed, and now that the market has entered the box KOSPI range, attention is focused on whether it can break through this range again.

◆ Kim Yong-gu, Hana Financial Investment Researcher = On the 7th, the KOSPI closed up 1.8%, and the KOSDAQ index rose 1.6%. The peak-out of the increasing trend of confirmed cases in the U.S. and expectations of stock purchases by the U.S. Federal Reserve (Fed) caused the U.S. stock market to surge, which had a significant impact on the KOSPI, stabilizing it around the key 1800 level.

After passing the selling peak near the 1500 level, the market has now entered the lower end of the box KOSPI range seen since 2011, so it is reasonable to say that the first mission of recovering market losses has been successfully accomplished.

The market's next mission will be the process of 'Defying Gravity' within the 1800?2050 box KOSPI range. Since 2011, the driving forces behind repeated breakouts from the box range have been threefold: the emergence of global economic and policy momentum, the return of foreign investors’ love calls based on the full-scale carry trade in emerging markets, and the recovery of domestic stock market earnings stability and visibility.

This suggests that future market focus will be on how much the anticipated real economic indicators and corporate earnings downturn can be curbed through counteracting policy responses, how quickly global deferred demand and investment can revive after the lifting of economic activity lockdowns, and whether the reflation trading trend, a prerequisite for emerging markets’ remarkable relative performance, can be restored on a trend basis.

◆ Seo Sang-young, Kiwoom Securities Researcher = The U.S. stock market surged more than 3% intraday amid expectations of economic reopening, but its impact on the Korean stock market is expected to be limited as it was already priced in the previous day. Meanwhile, international oil prices plunged due to negative remarks from the Energy Information Administration (EIA) regarding the OPEC+ (a coalition of OPEC and 10 major oil-producing countries) talks, which is likely to have a negative effect on the Korean stock market. In particular, the recent rise has led to profit-taking selling, and the decline in the U.S. stock market adds to the burden.

On the other hand, the European Central Bank (ECB) eased collateral conditions for liquidity support programs, alleviating concerns about a fiscal crisis in Southern Europe. Expectations for economic reopening in various countries around the world have risen, and the Korean won has strengthened significantly against the U.S. dollar, as seen in the New York offshore non-deliverable forward (NDF) market. These factors are positive as they can have a favorable impact on foreign investors’ supply and demand.

Meanwhile, in the U.S. stock market, some technology stocks that had led the rise showed weakness, but ExxonMobil and others showed strength due to positive news, and resort and travel sectors, which had fallen due to COVID-19 fears, also rose. This has significant implications for the Korean stock market. Considering these characteristics of the U.S. stock market, a correction in the Korean stock market is expected, but there is a higher possibility of a market where some individual stocks show strength.