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Market watchers downplay long-term impact of coronavirus in Korea

Traders watch monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul on Wednesday. (Yonhap)
Traders watch monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul on Wednesday. (Yonhap)
Although concerns over the possible impact of the deadly coronavirus on the financial market are rising here, analysts say that the “noise” caused by the contagious virus originating from China will be short-lived and eventually overshadowed by company fundamentals that remain strong, coupled with the easing trade conflict between China and the United States.

“The spread of coronavirus will not likely cause an unprecedented pandemonium but merely an uncanny noise to investors,” wrote Kim Yong-gu, a stock analyst at Hana Financial Investment, in his recent report, citing that victims of the contagious virus were mostly elderly people globally as of last week as one of the reasons

Some analysts also cited upward stock market corrections in previous cases, including the outbreak of the severe acute respiratory syndrome-related coronavirus in 2003 and the Middle East respiratory syndrome in 2015. Local brokerage Kiwoom Securities forecast last week that the impact on the economic readings will last no longer than three months.

However, some specific sectors like duty-free retail, consumer goods and transportation may go further through a higher volatility on apparent projection of falling sales from Chinese customers.

According to SK Securities, industry sectors for air carriers, cosmetics, outfits and hotel and leisure services took the largest losses from Jan. 17-22.

“The outbreak has dampened investor sentiments on the sectors that were earlier expected to be lucrative during China’s Lunar New Year holiday season,” wrote SK Securities analyst Han Dae-hoon.

“But the company fundamentals here remain unscathed. The US-China trade conflict is showing signs of improvement, while the prospects for fourth quarter earnings growth remain strong” primarily led by the upbeat semiconductors sector, Han added.

Meanwhile, the stronger investor appetite for safe havens is likely to affect bond prices in Korea on the short term.

Lee Mi-sun, a fixed income analyst at Hana Financial Investment, wrote in a note that the spread of coronavirus is a newly emerging factor in the bond market that might weigh on the Asian emerging market’s growth prospects and potentially lead to a rate cut by the central bank here, as during the previous outbreaks of SARS and MERS.

But Lee added the pressure from it could be offset by the US Federal Reserve’s balance sheet expansion, as it has bought $60 billion in short-dated Treasury bills every month since October.

On Monday, financial authorities including the Ministry of Economy and Finance, the Bank of Korea and the Financial Services Commission held closed-door meetings to discuss countermeasures on the outbreak, before markets resume trading Tuesday after the four-day Lunar New Year holiday from Friday.

The Korean stock markets took moderate losses last week. The Korea Exchange’s main bourse Kospi edged down 0.2 percent from Jan. 20-23, while the development board Kosdaq fell 0.4 percent. Korea’s three-year sovereign bond yield fell 0.9 basis point, meaning the bond price rose by the corresponding amount.

Korea has reported four confirmed cases of the coronavirus known to cause severe respiratory illness, fever and dry coughs, as of Monday.

By Son Ji-hyoung (consnow@heraldcorp.com)

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