Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Will KOSPI weather virus-triggered turbulence again?
By Anna J. Park
Analysts expect key indexes to follow W-shaped recovery path
By Anna J. Park
History shows that the Korean stock market experiences a similar situation following the outbreak of every highly-contagious virus here ― W-shaped recovery. It first tumbles heavily, then undergoes small ups and downs, and finally shows a meaningful rebound.
With the market undergoing severe turbulence due to the spread of the novel coronavirus, market participants are paying attention to whether the KOSPI will again follow in its previous footsteps, as shown during MERS in 2015 and SARS in 2003.
The nation's benchmark index has taken a heaving beating over the last week as the number of COVID-19 patients rapidly increases nationwide. The KOSPI closed at 2,079.94 on Feb. 24, down 3.87 percent from the previous trading day. During the past week alone, the KOSPI fell by over 7 percent from when it closed at 2,243.59 on Feb. 14.
Until the start of last week, the nation's key index was on its way to a recovery from late January's drastic fall due to the outbreak of the COVID-19, as the number of confirmed patients in Korea seemed to have ceased to increase. However, the recent spike in confirmed cases throughout the nation has sent a blow to the slowly rebounding market.
Based on the past patterns of the KOSPI chart, market watchers advise investors that they wait for another upturn trend and use the chance of buying the dips, instead of being gripped by unfounded fear.
A recent report published by Meritz Securities Korea compared the current situation with two previous pandemic-stricken crises ― one in 2003 following the outbreak of SARS, and the other case in 2015 in the aftermath of MERS.
The report pointed out that a W-shaped index movement, not a V-shaped trajectory, was observed in both cases, although specific incidents that affected the second bottom of the W-shape pattern were different each time. In 2003, the Iraq War broke out amid the impact of SARS; in 2015, the Greek debt crisis sent a further blow to the KOSPI.
This time around, in addition to the further spread of the COVID-19, the U.S.' additional indictment on Huawei and Apple's warning earlier this month that it expects to miss the second-quarter forecast for revenue could bring a further slump to the KOSPI index.
“The previous rebound was attributed to people's expectations that the pandemic outbreak would not get worse, not that the crisis was totally resolved,” analyst Ha In-hwan at Meritz Securities Korea, who wrote the report on the W-shaped pattern, told The Korea Times.
“It means that investment psychology has still remained vulnerable due to the uncertainty over the disease's outlook. Thus, the market could easily be disturbed by other unfavorable factors,” he added.
The analyst added that, despite somewhat impaired economic performances, profit estimates for the next year of most companies are much higher than those for this year, meaning that the current bearish move could turn into a bullish trend sometime in the future.
Head of Kyobo Securities Research Center Kim Hyoung-ryoul also said that the current market turbulence does not seem to hurt the economy's basic fundamentals for 2020.
“I see that the KOSPI for the time being is passing a variability interval, where the index repeats fluctuations,” Kim told The Korea Times.
“However, although I agree that the current volatility could weaken the general investor sentiment, I don't think that it would completely reverse the previously-expected outlook for this year, such as the market's anticipation for revival in exports or low interest rates,” the research center chief explained.
He also pointed out that fundamental information for predicting stock value has to do with a businesses' projected cash flow, warning that some investors' approach to simplistically trying to forecast future stock trends based on specific incidents is not sound.