Stock market's fear gauge rising amid uncertainty surrounding US Presidential Election

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By Anna J. Park

Ahead of the upcoming U.S. Presidential election, uncertainties about the result as well as concerns over a possible third shock from the global pandemic have increased Korean stock markets' volatility.

Reflecting investors' uncertainty, the benchmark KOSPI showed a downward trend last month, falling 2.6 percent. It was the first monthly decrease in seven months since the COVID-19 shock shook the market in March.

Yet, Monday's KOSPI ended at 2,300.16, up 1.46 percent from last Friday's trading session when the index plunged by 2.5 percent. Last Friday, the KOSPI stood at 2,267 points, the lowest point since the end of July.

While the index slightly rose by 1.46 percent Monday, retail investors net sold stocks worth 107.6 billion won ($94.9 million), as foreign investors and institutional investors net purchased stocks worth 49.0 billion won and 48.7 billion won, respectively.

“Uncertainties surrounding the U.S. election result as well as the resurgence of the pandemic in European countries added downward pressure to the Korean stock markets on Monday. However, as BOK Governor Lee Ju-yeol's announced during the Monday session that the central bank would take necessary measures to stabilize the market in case the U.S. Presidential election result expanded volatility, the benchmark index ended with a slight increase,” Seo Sang-young, analyst at Kiwoom Securities, said about Monday's trading.

The V-KOSPI, the volatility index for the KOSPI, stood at 28.65, down by 10.38 percent at Monday's close. During the session, it fluctuated between 28.54 and 31.83. The volatility index hit a three-month high of 31.97 last Friday, reflecting unnerving sentiments. The volatility index was as low as 20.34 by mid-October, yet it soared at the end of last month.

Market experts say a possibility of a further downward trend depends on the result of U.S. elections.

“Average public poll results show about 7.2 percentage points between Biden and Trump, hinting at a possible win by Biden. Yet the difference still fell within the margin of error in contested regions, thus no one's sure about the election results,” said analyst Seo. “Another possible problem is that the counting of postal votes could take more time than expected, prolonging the period of uncertainty. This prolonged political uncertainty is playing a part in shrinking investor sentiment,” the analyst added.

Yet market analysts also point out that once the election result is confirmed, it could create further market momentum.

“The two presidential candidates mentioned huge scale stimulus packages, the election result would provide market momentum, rather than noise,” said Seo Jeong-hoon, an analyst at Samsung Securities, adding that if the Democratic Party takes both Congress and the Senate, as the poll predicts, then continual stimulus measures are expected. “More than ever, the next round of the Federal Open Market Committee (FOMC) will be significant,” the analyst added.