[Good Morning Stock Market] Concerns Over Stock Market Overvaluation... "Short-Term Volatility Expected to Increase"

Domestic and International Stock Market Bubble Debate, Increased Volatility Concerns
Stock Prices Show Little Change Despite Earnings Surprises
Investor Sentiment and Supply-Demand Changes... "Growth Stocks Continue to Rise"

[Asia Economy Reporter Minji Lee] Recently, both domestic and international stock markets have seen a concentration phenomenon in certain stocks, fueling bubble concerns. As fears of an economic slowdown grow due to the resurgence of the novel coronavirus infection (COVID-19), there is also a sense of crisis that market volatility could increase. Securities experts say that short-term supply and demand changes may become significant, so the market should be approached from a conservative perspective.

[Image source=AP Yonhap News]

◆ Kyungmin Lee, Researcher at Daishin Securities = Samsung Electronics and LG Electronics started the earnings season with surprises. Hanssem and Techwing also recorded earnings that exceeded expectations. However, the short-term stock price movements after the earnings surprises were mixed. Samsung Electronics, which had priced in earnings expectations in advance, declined, while Hanssem, which had limited earnings expectations, surged about 20%. Stocks that had priced in earnings expectations fell, while those that had not rose.

It is also judged that the period when policies acted as an upward factor for stock prices has passed. The comprehensive plan for the Korean New Deal policy to be announced this week is likely to become an important growth engine for the Korean economy, industry, and stock market. Since the schedule was disclosed last week, software, secondary battery, and solar-related stocks have surged, and stock prices have largely priced this in.

Corporate earnings surprises and long-term policies and plans are important driving forces for the KOSPI's upward trend. However, it should not be overlooked that earnings and policy expectations have been priced in short-term. Especially, as COVID-19 continues to spread and foreign exchange market volatility expands, pressure from foreign investors’ profit-taking sales is bound to intensify. For example, if approval of the 750 billion euro pandemic relief package is delayed again due to disagreements among countries at the EU summit scheduled for this week, the pressure for a stronger dollar will inevitably increase.

While the medium-term direction of the index is becoming more solid, caution regarding short-term volatility expansion due to changes in foreign investors’ sentiment and supply-demand should be heightened.

◆ Yaeun Kim, Researcher at IBK Investment & Securities = After the economy hit bottom in the second quarter, expectations for a V-shaped rebound were high, but concerns about economic slowdown are growing. The number of unemployed is increasing due to contraction in the real economy, and profit-taking sales are also appearing, gradually weakening investor sentiment. As a result, it is necessary to view the overall market from a conservative perspective during the period of responding to the COVID-19 spread.

However, since this is a market where abundant liquidity can flow in, the concentration phenomenon is inevitable. In the era of low growth and low interest rates, the environment for the 4th industrial revolution to grow further due to COVID-19 has been created, so interest in growth stocks is bound to increase. This trend is expected to continue for the time being. In particular, the Korean New Deal policy to be announced this week may accelerate the concentration in growth stocks. Since it is a positive issue for existing leading stocks amid weakened investor sentiment, the upward trend is expected to continue.