South Korea’s benchmark Korea Composite Stock Price Index (Kospi) that fast recovered over 2,100 in early June after virus-led selling three months ago will face a correction period in the second half of the year, analysts warned.
Concerns about a second wave of virus infections are rising and vaccine development is still a way to go, weighing on the U.S. and Korean stock markets from mid-June.
The Kospi finished Monday 1.93 percent lower at 2,093.48 and then recovered 0.71 percent to 2,108.33 at on Tuesday.
Experts now expect the current mood will remain unchanged next month.
“What matters most to stock markets next month is whether the COVID-19 outbreak ends without resurgence or not. Even if the situation stays the same, markets would fall into a correction briefly or worse for a sustained period,” said Jung Yong-taek, an analyst at IBK Securities.
As stocks have surged despite the virus scare in April and May, investors are now more sensitive to negative news under a bubble-like environment.
“No one knows how much the markets are affected by bad news, which is why people are more sensitive about them,” said Oh Hyun-seok, an analyst at Samsung Securities.
Bleak earnings outlook for companies also supports the correction scenario for July.
Under the scenario, some analysts expect the Kospi could go as low as 1,900 next month, with a correction of 5 to 10 percent from now. IBK Securities estimated the index could fall down to 1,920, Samsung Securities to 1,850, and Hana Financial Invesment, SK Securities and Eugene Investment & Securities to 2,000.
Economic stimulus packages by the government, however, could help buoy the market, analysts said. Some blue-chip stocks will also be least affected during the correction period, such as in the field of biopharmaceuticals, secondary batteries, gaming, online platforms and chips.
“If a COVID-19 vaccine is successfully developed, the Kospi will likely go above the previous peak of 2,267.25, but otherwise, we would see a serious retreat to 1,600 again,” warned Jung.
“This year’s presidential election of the U.S. also remains most unpredictable, raising the possibility of a renewed trade tensions between Washington and Beijing,” said Choi Seok-won, an analyst at SK Securities.
By Park In-hye, Ahn Gab-seong, Shin Yoo-kyung and Lee Ha-yeon
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