[Good Morning Stock Market] Will Omicron-triggered Panic Selling Strike... Tension Mounts

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[Asia Economy Reporter Lee Seon-ae] Will the fear of the COVID-19 variant virus 'Omicron' trigger a panic sell-off in the domestic stock market on the 29th? It is immediately expected that the 'Omicron variant market,' i.e., increased stock market volatility, will be inevitable. The market is on high alert over the possibility that Omicron could be more potent than the Delta variant. However, there is also a strong voice urging caution against excessive concern while closely monitoring whether it spreads to Asian markets.

The domestic stock market opening on this day is expected to show an Omicron variant market trend. Park Sang-hyun, a researcher at Hi Investment & Securities, said, "The emergence of the Omicron variant virus will act as a black hole for all factors," adding, "This week, the November China Manufacturing PMI, the US ISM Manufacturing Index, and employment data are scheduled to be released, but the Omicron variant virus variable trend is expected to be at the center of all issues."

In particular, the US stock market's sharp drop of over 2% due to the Omicron impact is a burden on the domestic stock market. Seo Sang-young, a researcher at Mirae Asset Securities, said, "The rapid spread of the Omicron variant virus and news that a secondary infection occurred in the front cabin of an Omicron patient confirmed in Hong Kong suggest the possibility of airborne transmission, which raises concerns."

The issue is whether Omicron will spread. Shin Seung-jin, a researcher at Samsung Securities, explained, "If lockdowns due to the variant virus spread in the future, supply chain bottleneck issues could resurface," adding, "This could lead to renewed concerns about a global economic slowdown." Researcher Seo also said, "We need to continuously monitor whether it spreads to Southeast Asia and China, as this could affect supply chain issues," expressing concern that "in the worst case, if this spreads, panic selling could expand."

However, since investors have developed resistance to variant virus setbacks continuing since last year, there is also a view that the decline will be limited. According to Hana Financial Investment, when the COVID-19 variant virus first appeared in the UK in September last year, the KOSPI fell 7% from its peak, and it dropped 6% in October when the Indian variant occurred. In December, when another variant emerged in Brazil, it was hardly affected. Lee Jae-man, a researcher at Hana Financial Investment, said, "The negative impact of variant viruses on the stock market is weakening due to a learning effect," and forecasted, "Considering a maximum 6% decline including on the 26th, the expected lower bound of the KOSPI in December is about 2810 points." Researcher Seo also predicted, "Since factory lockdown measures have not yet been implemented globally, the increase in volatility will be limited."

Chae Hyun-gi, a researcher at Cape Investment & Securities, emphasized, "It would not be negative for the domestic stock market if Europe or the US implements lockdown policies due to Omicron; rather, it would be negative if it spreads to Southeast Asian countries or China, leading to factory shutdowns," adding, "We need to watch whether the Omicron variant spreads in the Asian region." He continued, "Even during the Delta variant spread, the shock to the stock market was significant but short-term," and added, "If the supply chain shock does not become prolonged due to this variant, the decline is expected to be limited, so buying opinions on semiconductor and automobile sectors remain meaningful."

Researcher Shin also said, "The current KOSPI price-to-earnings ratio (PER) is at a low valuation level of around 10 times, so selling at this point does not seem beneficial," adding, "If lockdowns due to the variant virus spread in the future, supply chain bottleneck issues could resurface, and if concerns about a global economic slowdown re-emerge, the Federal Reserve's ongoing tightening schedule will inevitably be delayed." In other words, the issue of interest rate hikes that had been weighing on the market is pushed back.

Researcher Shin emphasized, "For mid- to long-term investors, a strategy to buy large semiconductor sectors such as Samsung Electronics and SK Hynix, which foreign investors have concentrated on buying even during this adjustment period, is effective," and recommended, "In the short term, trading semiconductor and OLED material, parts, and equipment small- and mid-cap stocks with good growth momentum, as well as the bio sector, which performed the worst this year."

Researcher Lee said, "The negative impact of variant viruses on the stock market is weakening due to the learning effect, and as the downward revision of semiconductor earnings estimates is concluding, the downward revision of KOSPI earnings estimates is also showing signs of calming," adding, "Attention is needed on Kia, Samsung Electro-Mechanics, LG Innotek, F&F, which have steadily upwardly revised 2022 net profit estimates among semiconductor, automobile, chemical, IT hardware, cosmetics, and apparel sectors, as well as SK Hynix and Lotte Chemical, which are recently forming lows."

Meanwhile, major weekly events include △ South Korea's October industrial production (30th) △ South Korea's November exports and imports (December 1st) △ China's November Caixin Manufacturing PMI (1st) △ US November ADP private employment (1st) △ US November ISM manufacturing (2nd) △ South Korea's Q3 GDP (2nd) △ US November employment report (3rd), among others.