4th COVID-19 wave to have limited impact on financial markets

Office workers are seen commuting to work at a metro station in Seoul, Friday. Yonhap

By Kim Bo-eun

The government's plan to introduce the toughest social distancing measures next week took a toll on the local stock market, Friday. The benchmark KOSPI closed at 3,217.95, Friday, down 1.07 percent from the previous day's close.

The government announced earlier in the day stricter social-distancing rules for the metropolitan area in a bid to curb a fourth wave of mass COVID-19 infections. For two weeks starting Monday, July 12, only gatherings of two people will be allowed after 6 p.m.

The Korean currency closed at 1,145 won against the U.S. dollar, following volatile intra-day trading. The won-dollar exchange rate surged to a nine-month high, Thursday, rising 6.9 won from the previous session's close.

Market volatility is attributed to investor preference for stable assets amid uncertainties posed by the fourth wave of infections, following the spread of the Delta variant. But the prevailing view is that the shock felt by the financial markets will be short-lived, because the fundamentals of the Korean economy remain strong.

"With the exception of the first mass outbreak here, the second and third waves did not cause significant damage to the economy, and their shocks were short-lived. Similarly, it appears that the effects of the fourth wave will end soon," Hi Investment & Securities analyst Park Sang-hyun said in a report.

Ample liquidity in the equity market and efforts by major drug makers to develop vaccines targeting the Delta variant, are seen as factors additionally repelling concerns of a greater shock to the markets. Projections of gradual tapering measures implemented by the U.S. Federal Reserve are also boosting market confidence.

But others were more cautious.

"Korea has shown sound economic performance and its GDP growth forecast for 2021 has been upwardly revised to 4 percent. But an unexpected fourth wave has become a new variable," Sejong University professor Kim Dae-jong said.

"Korea's GDP growth was projected on the premises of easing social distancing rules and achieving a 70 percent vaccination rate by November. But uncertainties loom as the Delta variant continues to spread not only here, but around the world. Korea could see damage if global trade shrinks as a result, given its heavy dependency on trade."