[Good Morning Stock Market] Market Becoming Insensitive to Negative Factors... Focus on Rebound of Overlooked Stocks

Global Volatility Index Stabilizes... Signs of Recovery in Aviation and Transportation Sectors
Expectations Rise for Rebound in Previously Neglected Industries

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Despite concerns over escalating tensions between the United States and China, the stock market volatility is stabilizing amid expectations for the development of a novel coronavirus (COVID-19) vaccine. Assuming ample liquidity and the resumption of economic activities, there is a forecast that while the index undergoes a 'breather,' sectors that have been sidelined so far may experience a rebound.

◆ Dongchan Yeom, Researcher at Ebest Investment & Securities = The trend of easing volatility in the financial markets continues. Despite concerns over intensified US-China trade conflicts, the volatility index of the New York Stock Exchange on the 22nd showed signs of stabilization. Although the European volatility index rose slightly, it remained at a more stable level compared to March and April. Commodity prices are also gradually increasing. Oil prices, which fell to negative levels for the first time this year due to concerns over excess demand and supply caused by COVID-19, are continuing their rebound. Despite concerns over US-China conflicts following the National People's Congress, oil and copper prices declined by only about -2%.

Looking at the sectoral returns of the MSCI international index since the pre-COVID-19 peak on February 19, none of the sectors have fully recovered to previous levels. Among them, the retail and pharmaceutical/biotech sectors showed the best recovery rates, while banks and energy sectors had the lowest recovery rates. In particular, the airline transportation sector, classified under the Global Industry Classification Standard (GICS) level 3, was especially weak.

However, this situation has recently been changing. Following the reopening of the economy, energy prices such as West Texas Intermediate (WTI) crude oil continue to rise, and investment sentiment in energy companies is gradually improving. Although airline stocks remain sluggish, the US Transportation Security Administration (TSA) announced that the average daily number of travelers has increased for four consecutive weeks. On the 21st, the daily traveler count rose to 318,000, surpassing 300,000 for the first time since March 23. Investment sentiment in airline stocks can be seen as having passed the worst phase.

◆ Junghoon Seo, Researcher at Samsung Securities = Considering the internal circumstances of the US and China, both of which are making all-out efforts to defend their economies, political decisions that cause economic damage are likely to be limited. Since the economic stimulus is being carried out despite large fiscal deficits, special caution is required. Although the US presidential election is ongoing and disturbances may last longer, its impact is considered lower than during the previous US-China trade dispute. Ultimately, the market's focus is on whether the resumption of economic activities in each country proceeds smoothly. Since mid-month, lockdowns have been gradually lifted, and the fact that no signals of a second wave of infections have appeared is positive.

Assuming ample liquidity and the resumption of economic activities, although a strong upward surge may be difficult, a sector rotation flow is expected. While the index takes a 'breather,' a process of catching up among previously sidelined sectors can occur. Considering the recent momentum in oil price recovery, strong performance is expected in the materials and industrials sectors. Large-cap value stocks, which had slower gains during the rebound phase, can participate in the rotation flow. However, themes related to the structural growth of non-face-to-face industries triggered by COVID-19 and reshoring (the return of domestic manufacturing companies that had expanded overseas back to Korea) in major manufacturing sectors are valid buying opportunities during corrections from a mid- to long-term perspective.