Level 4 social distancing measures overshadow local stock market

With South Korea entering the fourth wave of the COVID-19 pandemic, the benchmark Korea Composite Stock Price Index (KOSPI) dropped over 1 percent. The local currency won rose more than 19 won for the past three days to reach 1,150 against the U.S. dollar. The market appears to have been affected by concerns that Level 4 social distancing rules in the Seoul metropolitan area could dent consumption.

The KOSPI fell 34.73 points, or 1.07 percent, to close at 3,217.95 on Friday. The KOSPI dropped almost 2 percent at one point to fall through the 3,200 mark. Foreign investors and institutional investors net sold 1.3337 trillion won and 508.5 billion won, respectively. The amount net sold by foreign investors was the biggest since May 13 (1.4343 trillion won). Individual investors net bought 1.8014 trillion won, preventing further declines. It was the third day in a row that individual investors net bought more than 1 trillion won. With foreigners continuing to sell stocks, the won rose 4.1 won from the previous day (1,145.0 won) to close at 1149.1 won. A rise in the won-dollar exchange rate continued for three trading days, gaining 19.4 won.

Concerns were raised in the financial market on Friday that the fourth wave of COVID-19 will dampen expectations for an economic recovery. “The elevated social distancing measures will take a toll on domestic consumption, especially the service industry,” said Park Sang-hyun, a researcher at the Hi Investment and Securities. “There are also growing concerns in the market that the fourth wave could be longer than expected.”

There is a speculation, however, that the fourth wave will not lead to a stock market crash like it did during the first wave of pandemic last year and will stop at being a short-term shock. The KOSPI underwent a correction at about 6 percent last summer during the second wave of COVID-19, and during the third wave of COVID-19 at the end of last year, the stock market continued on an upward trend.

Some analysts even argue that the spread of COVID-19 could delay a rise in interest rates, serving as a favorable factor to the stock market. “The main driving force behind the boom in the stock market was low interest rates,” said Kim Hak-gyun, the head of the research center at Shinyoung Securities. “The Level 4 social distancing measures are bad news for the real economy but they can help quell the concerns about interest rate hikes.”


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