Local market on alert against worst-case scenario

A dealer reads an article on the U.S. presidential election at KB Kookmin Bank main branch in Seoul, Thursday. The benchmark KOSPI closed at 2,413.79, up 2.4 percent from the previous session's close. / Yonhap

By Park Jae-hyuk

Market participants are keeping a close eye on the U.S. presidential election, with Democratic presidential candidate Joe Biden inching closer to the magic figure of 270 electoral college votes while President Donald Trump moves ahead with his plan for a massive legal battle.

Not surprisingly, the local financial market is prepared for any “worst-case scenario.” Wall Street had been warming to the possibility of a “Blue Wave,” in which Democrats take control of both the White House and the Senate as this is expected to lead to a large-scale stimulus plan which can lead a stock market rally with expectations for economic growth.

However, the Democrats seem unlikely to dominate the Senate as of 5 p.m., Thursday (KST). What would be worse is Trump's earlier declaration of himself as the winner but insisting on getting the Supreme Court to halt the counting of votes in certain states.

Analysts said the local stock market is set to continue its volatile sessions “for a while” under these circumstances.

“The growing uncertainties over the U.S. presidential election have had a negative impact on the market,” Kiwoom Securities analyst Seo Sang-young said. “Another negative factor is that a large-scale stimulus package is seen as more unlikely.”

Advising investors to brace for the greater volatility, NH Investment & Securities analyst Cho Yeon-ju said concerns over an economic slowdown following the delayed U.S. stimulus package may have a negative impact on the Korean stock market.

Analysts mentioned the case of the 2000 presidential election in which the winner could not be determined for more than a month as George W. Bush and Al Gore disputed in court over vote counting in the state of Florida.

Back then, the KOSPI fell nearly 10 percent within 19 trading days after the election.

“In the worst-case scenario, the uncertainty can continue until January next year,” Shinhan Investment analyst Choi Yoo-joon said.

The government, however, is weighing this less, saying possible risks from the U.S. election have already been reflected in the local financial market.

“Given that the U.S. will maintain eased monetary and fiscal policies, the financial and foreign exchange market volatilities will likely be limited,” Vice Finance Minister Kim Yong-beom told representatives from the central bank and financial regulators during a meeting Thursday morning.

As he said, Seoul stocks rallied, Thursday, in sync with the New York market rally a day earlier.

The benchmark KOSPI rose 2.4 percent to 2,413.79 and the tech-heavy Kosdaq soared 2.16 percent to 844.80. The Korean won closed at 1,128.2 won per dollar, down 9.5 won from the previous session's close.

Some experts said Biden's victory and the Republicans' control over the Senate can be favorable to the market because the Senate is able to put the brakes on regulatory measures and tax increases.

The Financial Services Commission (FSC), which has been monitoring possible outstanding issues in what estimated impact the U.S presidential election could have on domestic and foreign financial markets, plans to hold another meeting, Friday, which will be presided over by FSC Chairman Eun Sung-soo.