Will KOSPI enjoy year-end rally despite Omicron risks?

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By Anna J. Park

Market analysts have been split over the direction of the Korean stock market during the year-end period, but more of them are expecting that a year-end rally is not highly likely, due to increased uncertainties stemming from Omicron variant cases and concerns over early tapering steps taken by major countries, according to analysts.

Local stock markets witnessed a strong year-end rally in 2020 with the main KOSPI closing at 2,873.47 on the last trading day of last year, setting a record. The optimistic stock movements continued in January of this year, with the main index rising over 30 percent within just a month's time.

While last year's bullish movements were mainly due to ample market liquidity, central banks of major countries have been curtailing liquidity in 2021 through tighter monetary measures. The spread of the Omicron variant is adding fuel to the already pervasive uncertainties.

“If the U.S. Fed's tighter monetary policy stance does not change, despite the continual spread of Omicron cases, investors' tendency to reap profits by selling growth stocks on the Nasdaq could be strengthened. We also need to closely watch the strengthened value of the greenback,” Park So-yeon, an analyst at Shinyoung Securities, pointed out.

However, market watchers remain confident that a solid market recovery will follow, once the global market overcomes the shock from the Omicron variant cases. There are reports that the Omicron variant's impact might not be as severe as expected, but the market has yet to decide on a clear direction due to remaining uncertainties.

Once risks related to the Omicron variant have cleared, analysts believe that global stock markets could experience stronger momentum buoyed by expectations of economic reopening and recovery. Analysts also view that a continued correction in the stock market and alleviated concerns over inflation could fuel equity purchases and become another factor affecting the market's recovery in the near future.

“As the spread of the Omicron variant could facilitate a faster rate of vaccination among the population, a solid level of market reopening could take place following the current phase. It should especially be the case if COVID-19 treatment medication becomes available in the near future,” Park explained.

Global investment banks are also generally positive about the influence of the Omicron variant. Morgan Stanley views that the effect of Omicron will peak in two to three months.

“Unless large-scale economic blockades take place, the Omicron variant's general impact on the economy is not expected to be too serious,” Seo Sang-young, an analyst at Mirae Asset Securities, said.