Amid hope for recovery, stock market to see less volatility

An electronic board, set up at a dealing room of Hana Bank's headquarters in Seoul, shows a small gain of the benchmark KOSPI on Wednesday morning. Yonhap

KOSPI still grappling with tapering fear

By Lee Min-hyung

The stock market will be on track for a gradual recovery and may face reduced volatility, as the U.S. Fed is unlikely to send any specific or imminent signals for earlier-than-expected tapering before the planned Federal Open Market Committee (FOMC) meeting next month, economists said Wednesday.

Stocks have continued to hold steady this week after experiencing a big plunge in mid-August amid foreign investors' mass exodus due to fears of an imminent start of the Fed's tapering.

But it's highly unlikely that the benchmark KOSPI and the junior Kosdaq will be on another rollercoaster ride in the coming weeks, as the Fed will not deliver a hawkish message on reducing its bond purchases at the upcoming annual Jackson Hole Economic Symposium scheduled for Friday.

Given the dovish stance of Federal Reserve Chairman Jerome Powell, the Fed will likely signal a slow tapering and remain careful over mentioning its detailed timeline during the Friday conference amid the continued spread of Delta variant of COVID in the U.S.

This assessment will help the KOSPI and secondary Kosdaq to see lessened volatility in the short run until the next FOMC meeting. The main bourse shows little fluctuation after closing Tuesday at around 3,100 points despite a selling spree by foreign and institutional investors. Last week, the KOSPI fell below the 3,100-mark for the first time in four months.

The Kosdaq also bounced back to the 1,000-point mark after dipping below the symbolic figure last week. After recovering to the four-digit mark, the secondary stock market has maintained a steady performance for the past few days.

The KOSPI edged up 0.27 percent to end at 3,146.81 Wednesday, while the Kosdaq finished at 1,017.78, up 0.45 percent from the previous close.

“With concerns over the early tapering having been alleviated, foreign investors are controlling the pace of their selling spree of local stocks,” Shinhan Investment economist Choi Yoo-joon said. It appears their selling spree recently reached its peak, and they are on track to slow down the pace, but it is premature to say for sure that the local stock market will soon regain momentum for an additional rally, he said.

Beyond the so-called tapering fears, there are a few other outstanding external risk factors that could result in a possible collapse of the stock markets from a near-term viewpoint, according to other experts.

Hi Investment & Securities analyst Park Sang-hyun said weakening virus fears in the Asian economy is a positive signal for stock markets of emerging countries.

“The COVID-19 pandemic is showing signs of easing in many Asian countries, such as India, Indonesia, China and Taiwan, which will cast a positive impact on the overall Asian economy,” the economist said. “Countries, such as Vietnam and Korea, have not yet seen any outstanding drops in the number of daily infection cases, but the recent sign of resurgence of the virus spread in both countries is somewhat alleviating, which can also be interpreted as a positive factor for the stock market.”

Korea's daily virus infections topped 1,000 for 50 consecutive days since July 7. As of Tuesday, the figure came in at 2,155. But the dwindling virus shock in major countries in Asia ― which play a pivotal role in the global supply chain ― will cast a gradually positive effect on the overall recovery of the Asian economy, according to him.

“This will give (upside) recovery momentum in Korea and raise expectations for reducing a post-pandemic economic gap between developed and emerging countries,” he said. But it is too early to come to an early conclusion that the Korean economy is free from any uncertainties surrounding risks over the U.S. tapering issue following the Jackson Hall meeting,” according to him.