Coronavirus to continues to weigh on markets
A mask-wearing employee at KEB Hana Bank in central Seoul looks at monitors Tuesday, as the KOSPI market shows higher volatility due to the Wuhan coronavirus outbreak. / Yonhap
By Anna J. Park
The global spread of the coronavirus that originated in Wuhan, central China, is expected to continue to weigh heavily on the local financial market for a while, adding another burden to the economy, market experts said Sunday.
Amid growing fears of possible infection by a virus that does not yet have a vaccine, the epidemic has already taken a heavy toll on the local stock market with the growing number of confirmed cases.
Driven by a foreign investors selling spree, the benchmark index has lost nearly 6 percent over the past two weeks since Jan. 17, and a total of 104.32 trillion won in value has been wiped out in the local stock market. The KOSPI finished at 2,119.01 Friday, down 28.99 points or 1.35 percent from the previous close.
Market experts said that with ongoing uncertainty over the disease's future trajectory, the deadly virus will negatively impact the KOSPI's first-quarter growth, as economic activities are expected to be further beset by shrinking consumption.
“It is inevitable that we will witness a market correction at least in the first quarter of this year, because vaccine development, or a cure for the rapidly-growing number of infected patients, will not happen instantly,” Kim Hyoung-ryoul, head of Kyobo Securities Research Center told The Korea Times.
Kim Hak-kyun, head of Shinyoung Securities Research Center, said that the greater direction of the market will largely be decided sometime after mid-February, considering the virus' two-week incubation period.
“The first quarter could record a contraction, considering the past SARS case,” Kim said.
“In particular, markets directly hit by the virus, like China, will see a slower recovery than other markets. That's why the KOSPI could be further negatively impacted, as some foreign investors, who tend to buy Korean stocks along with Chinese stocks, stop putting Korean stocks along with Chinese stocks into their basket,” he added.
However the experts do not think the current situation will deeply influence the previously-expected yearly outlook for 2020 for the time being.
“The negative impact from the virus does not constitute a fundamental or structural recessional factor. Thus, while I expect the market will see a correction, especially considering the five-month-long KOSPI rally, I don't think we need to discount the future value of the market,” Kim of Kyobo said.
Senior analyst Kim Yong-goo at Hana Financial Investment advised investors to closely watch the market for a strategy of buying the dips, instead of being overly concerned.
“From the perspective of solid fundamentals, stocks like semiconductors and automobiles could be the target of buying on dips,” the analyst said, adding that noticing any triggering points of public expectation of an economic recovery was necessary.
“Regarding stock items most hurt by the current situation so far, in terms of drop percentages, consumer goods related to the Chinese market, such as duty-free shops, cosmetics, fashion, casinos and travel have been most seriously impacted so far,” Kim noted
“On the other hand, stock items like mask-manufacturing companies have been favored, although their weight in the total KOSPI market is miniscule,” he added.