[Good Morning Stock Market] Global Economic Recovery Expectations VS North Korean Military Provocations... Which Will Be Stronger?

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] Last week, the U.S. New York Stock Exchange, which had been shaken by fears of a resurgence of the novel coronavirus infection (COVID-19), continued its strong performance for three consecutive days. This was due to the liquidity boost from the U.S. Federal Reserve (Fed) and signs of recovery in various consumption and production economic indicators, which significantly improved investor sentiment.

The day before, North Korea blew up the inter-Korean joint liaison office building located in the Kaesong Industrial Complex. As a result, the domestic stock market saw major stocks among the top market capitalization shares fall by more than 1% in after-hours trading following the market close.

Experts say that while North Korea's provocation may have some impact on investor sentiment, it was already an anticipated issue, and since various global market indicators show a full economic recovery level, the impact on the domestic stock market is expected to be limited.

◆ Park So-yeon, Researcher at Korea Investment & Securities: Regarding the demolition of the liaison office, our government expressed strong regret. However, since neither the highest military commanders, President Moon Jae-in of South Korea nor Chairman Kim Jong-un of North Korea, are taking the forefront, there are voices predicting the possibility of a dramatic resolution. Also, the actions of President Trump, who has been fostering a dialogue atmosphere, are important; with the November presidential election approaching, it is highly likely that he does not want to create noise in the North Korea reconciliation policy, which he considers his greatest achievement. Currently, the biggest topics in the financial market are the pandemic, the strength of stimulus measures responding to it, and the future economic trajectory. The North Korea issue itself is not expected to become a major topic.

◆ Seo Sang-young, Researcher at Kiwoom Securities: After the reopening of the U.S. economy, consumption has increased aggressively. Additionally, the White House's reduction of COVID-19 vaccine candidates from 14 to 7, accelerating vaccine development, highlighted the rise in the U.S. stock market. However, industrial production still falls short of expectations, and Fed Chair Powell also emphasizes uncertainty about economic recovery, showing a significant gap between expectations and reality. Based on this, the U.S. stock market's daily volatility has expanded to nearly 3%. This is a burden as it increases uncertainty for the Korean stock market. The news of progress in vaccine development actively pursued by the U.S. government is positive. However, the number of new COVID-19 cases in the U.S. is rising again, and concerns are growing about a resurgence in China as well. In particular, the Chinese government raised the COVID-19 response level in Beijing, closing all schools and including pre-movement testing for people, which is negative news. Due to these factors, the U.S. stock market gave up some of its gains before closing, and the dollar and yen strengthened. The narrowing of the rise in government bond yields also increased the preference for safe assets, which is another burden. This is expected to increase the possibility of selling pressure in the Korean stock market.