Omicron and FOMC: "Leverage Uncertainty"

[Asia Economy Reporter Junho Hwang] It is forecasted that uncertainty will increase until mid-month due to the Omicron variant of the COVID-19 virus. However, the attractiveness of the domestic stock market is expected to continue rising due to gradual price stabilization. Samsung Securities Research Center announced this on the 4th through the 'Weekly Shot,' which contains next week's stock market outlook.

First, the impact of Omicron on the stock market is analyzed to be calming down after the first wave. However, if the absolute number of infections continues to increase, the financial market could be shaken again. In the short term, high volatility in the stock market is expected over the next two weeks as the nature of the virus is identified and the applicability of existing vaccines is confirmed.

Also, next week marks the last Federal Open Market Committee (FOMC) meeting of the year. Federal Reserve (Fed) Chair Jerome Powell has recently made hawkish remarks, which is also considered a source of uncertainty.

However, Samsung Securities analyzed that despite various risk factors, the valuation burden on the domestic stock market is significantly low. The KOSPI around the 2900 level corresponds to a negative return compared to the beginning of the year, which is equivalent to completely excluding the performance base built by domestic companies this year.

If a significant economic contraction is expected next year, this might gain some credibility. However, consensus remains high regarding domestic economic growth rates and corporate profit scales.

The external environment is not entirely negative either. Despite the Fed's tightening pace accelerating, the dollar index, a recognizable gauge of emerging market financial conditions, is limited in its upward movement. The U.S. 10-year Treasury yield, a global benchmark interest rate, is also following a similar trajectory, contributing positively to the liquidity environment.

The bottleneck issues and resulting inflationary pressures, which were the main causes of pressure on the domestic stock market before Omicron, are gradually easing. Considering that the surge in pre-demand for the year-end consumption season is gradually resolving, inflation indicators are highly likely to decline this month.

The recent consecutive decline in foreign investors' buying momentum can be seen as a result aimed at the possibility of such a positive scenario unfolding.

However, Samsung Securities researcher Seonghoon Seo stated, "Even in this situation, assuming the tightening clock is running, the desire to realize gains may continue to increase," and forecasted, "Attention should be paid to sectors such as electrical/electronics, transportation equipment, finance, and healthcare, where relative price inflows still remain."