Delta Variant... Shaken Investor Sentiment VS Fundamentals Still Solid

Uncertainty Grows... Repeated Trends Due to COVID-19 Spread
Economic Recovery Already Underway... Market Anxiety and Excitement Prevail
Focus on Undervalued Sectors in Preparation for Stabilization Phase

[Asia Economy Reporter Minwoo Lee] The spread of the COVID-19 Delta variant is stirring volatility in the global financial markets. However, analyses suggest that the likelihood of this leading to actual economic instability is low. Unlike the initial outbreak, lockdown measures in various countries are being eased, and although domestic demand shocks are inevitable, the economic recovery is continuing, primarily driven by export-oriented sectors.

On the 25th, Daishin Securities made this analysis. Recently, the number of confirmed cases has been rapidly increasing again due to the COVID-19 Delta variant. According to the Central Disease Control Headquarters, as of midnight on this day, new confirmed cases reached 1,487, exceeding 1,000 daily for the 19th consecutive day. On the 22nd, the number hit a record high of 1,842. The social distancing level 4 has been expanded nationwide. Concerns over domestic demand shocks amid global economic uncertainty have pushed the won-dollar exchange rate to the 1,150 won level, surpassing the highest point of the year. This has triggered a vicious cycle of supply and demand, including massive net selling of foreign investors in spot and futures markets and institutional program selling.

However, it is considered unlikely that the economic anxiety spreading worldwide will materialize. There are no signs that the economic recovery trend is weakening or faltering. The Oxford University Stringency Index, which indicates the intensity of lockdown measures, is generally declining, and economic activities are normalizing to pre-COVID-19 levels. The UK, where the vaccine's effectiveness has drastically reduced the proportion of severe cases and mortality rate, has even declared a full lifting of lockdown measures.

Lee Kyung-man, a researcher at Daishin Securities, stated, "Countries with high COVID-19 vaccination rates are gradually choosing to coexist with COVID-19, and global GDP growth forecasts are steadily being revised upward. In particular, strengthened expectations for economic recovery in the UK and Europe are changes that curb the strength of the dollar."

South Korea is also expected to eventually enter a stabilization phase. The current resurgence of COVID-19 is described as a repeated pattern globally (sharp increase in confirmed cases - strengthened quarantine measures - easing of case increase - relaxation of quarantine). Researcher Lee explained, "Domestic demand shocks are inevitable, but their impact on the KOSPI is also limited because export stocks and structurally growing stocks account for the majority of KOSPI's market capitalization and operating profits."

Ultimately, the spread of the COVID-19 Delta variant is expected to only stimulate economic anxiety 'psychology.' Therefore, the worsening domestic COVID-19 situation, resulting exchange rate and foreign/institutional supply-demand instability, and short-term volatility increase in the KOSPI are seen as opportunities to increase weighting. Researcher Lee emphasized, "Now is the time to prepare for entering the COVID-19 stabilization phase, downward stabilization of the won-dollar exchange rate, and stabilization and improvement of foreign and institutional supply-demand. Despite earnings improvements, attention should be paid to IT sectors centered on semiconductors and the internet, as well as secondary battery sectors such as energy and chemicals, and transportation and automobile sectors, where stock prices have been suppressed due to domestic and external uncertainties and supply-demand instability."