Is investor appetite for riskier assets recovering?

gettyimagesbank

By Lee Kyung-min

Investor sentiment is showing signs of regaining its risk appetite buoyed by hopes of a trade deal between the U.S. and China, reduced no-deal Brexit concerns and the recent U.S. Federal Reserve rate cut, analysts said Thursday.

With more investors turning to high-risk, high-return assets, the Korean stock market has also gained upward momentum. In contrast, gold and the U.S. dollar, seen as safe haven assets, are losing their growth trend.

The benchmark KOSPI has continued on a bullish run exceeding 2,100 points last Friday for the first time since Sept. 24, 2018, when it marked 2,101.04.

Gold, largely considered a safe asset alongside the U.S. dollar and Japanese yen, has edged up but it is still holding within the $1,480-1,520 per ounce range seen for the last few days.

“It's about time,” said Kyobo Securities Research Center chief Kim Hyoung-ryoul.

“Investors have been risk-averse for quite a while. The U.S. equity market, for example, is booming and Korea is rather late to join the global move. The bullish sentiment is likely to continue for some time.” he added.

The resumed, albeit transient, hopes on the possibility of the U.S. and China reaching a trade deal were enough of a trigger to move the market, according to Eric Lee, chief strategist at Daishin Securities.

“The returned risk appetite was mostly led by the U.S. trade officials' positive outlook on the deal. Investors deem overall uncertainties have substantially cleared,” Kim said.

The trade officials indicated that a deal with China could be signed in November, with U.S. Commerce Secretary Wilbur Ross saying that licenses for U.S. companies to sell components to Huawei Technologies would come “very shortly.”

The series of uncertainty-reducing news was helped further by the better-than-expected U.S. job data as well as the Fed rate cut, Lee added.

The Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) came in at 48.3 in October, a figure that drew some sighs of relief given the below-expectation reading was still above September's.

KB Securities chief economist Chang Jae-chul said the volatile sentiment could lose steam depending on upcoming economic indices and specifics on any trade deal.

“Expectations are one thing, and the actual figures are quite another,” Chang said. “We may have to brace for a sudden turn of events if bad news makes the headlines. The same goes with a trade deal. It remains to be seen whether the Korean currency will continue to stay strong by the end of year,” he added.

Mauro F. Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School cautioned that the current chase for returns could be short-lived.

“Investors are not crazy risky, however. It's too early to tell if emerging markets will benefit given Argentina, Turkey and China fears. Korea could attract more if it reforms,” he said.

Antonio Fatas, an economics professor at INSEAD agreed, saying it was too “early to call victory.”

“Lots of uncertainties remain. A reduction in risk and uncertainty and, in general, optimism about growth is good news for everyone including Korea. Some good news over the last days but still a long way to go to confirm that the worst is behind us,” he said.