[Good Morning Stock Market] "Contact Stocks Gaining Attention on Pfizer COVID-19 Vaccine Good News"

Dow Jones up 3%·International Oil Prices Surge 8%
Contact Stocks Rise, Untact Stocks Fall on COVID-19 Vaccine Hopes

Won-Dollar Exchange Rate May Hit 1060 Next Year First Half

[Asia Economy Reporter Minji Lee] On the 9th (local time), the New York Stock Exchange surged over 3% after news broke that Pfizer, a U.S. pharmaceutical company, reported that its COVID-19 vaccine showed more than 90% efficacy. The Dow Jones Industrial Average rose 2.95% compared to the previous session, and the S&P 500 also increased by 1.17%. In contrast, the Nasdaq Composite Index, which is home to many untact (contactless) companies, fell by about 1.53%.

[Image source=Yonhap News]

On the same day, oil prices also surged about 8% due to expectations of demand recovery following the normalization of economic activities. This was the largest increase since May, with West Texas Intermediate (WTI) crude oil for December delivery jumping 8.5% per barrel compared to the previous trading day.

◆ Sangyoung Seo, Researcher at Kiwoom Securities = The news that Pfizer's COVID-19 vaccine showed over 90% efficacy in the first interim analysis of its Phase 3 trial participants led to a rise in stocks related to contact industries such as airlines and leisure, which were heavily impacted by COVID-19, in the U.S. stock market.

The possibility of a "return to normal" has significantly improved investor sentiment toward contact-related stocks. However, the vaccine is unlikely to be widely administered to the general public until the end of 2021, and the limited information available about this vaccine remains a concern. In particular, uncertainties about the long-term efficacy, effectiveness in severe cases, and adequate protection for the elderly and vulnerable populations are worrisome. Nevertheless, untact stocks showed a sharp decline on the day, as rising expectations for a return to daily life increased concerns about deteriorating earnings.

◆ Hyojin Kim, Researcher at KB Securities = The weakness of the U.S. dollar is expected to continue for the time being. Although the COVID-19 situation is worsening in the U.S. and Europe, the impact of COVID-19 on the foreign exchange market is likely to be limited due to vaccine-related progress. Currently, emerging market currencies including the Korean won, Chinese yuan, and Brazilian real are all strengthening together. The possibility of increased U.S. fiscal debt is a major factor driving the dollar's weakness.

Most countries have increased fiscal deficits, but the U.S. fiscal response is more focused on income support and transfer payments rather than loans and guarantees, which is likely to lead to an increase in government debt burden. Although Europe had a larger overall fiscal response after COVID-19, when broken down by type, the U.S. had a larger scale of transfer payments and income support that could lead to fiscal debt, while Europe focused more on loans and guarantees that have potential for recovery. With Biden announcing large-scale fiscal spending, the downward pressure on the dollar due to expanding fiscal debt is expected to increase.

Another reason for the won's strength is that South Korea is one of the few countries expected to recover to its pre-COVID-19 economic size next year. South Korea's exports in October reached an average daily export value of $2.1 billion for the first time in 13 months, showing signs of recovery. With additional vaccine-related progress, expectations for economic improvement in export countries such as South Korea and China may rise.

Looking at the dollar band, the won-dollar exchange rate is expected to decline from 1,165 won to 1,130 won this year, and from 1,130 won to 1,100 won next year. It is also anticipated that the exchange rate could fall to a level close to 1,060 won in the first half of next year.