Stocks extend losses on escalating Omicron fear

Stocks extend losses on escalating Omicron fear

First Vice Finance Minister Lee Eog-weon speaks during a meeting with government officials at the Government Complex Seoul, Monday. Yonhap

Watchdogs pledge to tighten vigilance on possible stock fall

By Lee Min-hyung

Korean stocks extended their losses Monday on a selling spree by retail investors after Wall Street and European stock markets tumbled amid growing fears over the spread of the Omicron variant of COVID-19.

The benchmark KOSPI closed at 2,909.32, down 27.12 points or 0.92 percent from last week. The fall is attributable to renewed global alarm triggered by the new coronavirus strain. The main bourse dropped below the 2,900-mark at one time Monday morning. This is the first time in almost a year that the KOSPI failed to defend the level since Jan. 4.

Retail investors sold shares worth 741.8 billion won, but institutional and foreign investors used this for bargain hunting as they purchased local stocks worth 684.2 billion won and 65 billion won, respectively.

This is a drop for two consecutive trading days after the market slumped Friday in tandem with drastic falls on stock markets in major economies in the United States and Europe. The Dow Jones experienced its worst day of the year with a drop of 2.53 percent, Friday; while Germany’s DAX Index also fell 4.15 percent on the widening virus fear.

This has raised an alarm bell not just to investors, but the financial authorities here.

“We are stepping up vigilance on the specific movements of global stock markets and foreign investors, and if necessary, the authority will immediately take action to deal with possible uncertainties,” an official from the Financial Supervisory Service said. “But we do not have immediate action plans for the time being.”

Stocks extend losses on escalating Omicron fear

International travelers wearing personal protective equipment arrive at Melbourne’s Tullamarine Airport, Monday, after Australia recorded its first cases of the Omicron variant of Covid-19. AFP-Yonhap

The Ministry of Economy and Finance also said it is operating an “around-the-clock” emergency monitoring system on financial markets here and aboard.

“The emergence of the Omicron variant may widen volatility in international financial markets,” First Vice Finance Minister Lee Eog-weon said during a meeting to discuss the possible aftermath of the virus factor. “We cannot rule out the possibility that financial markets here and abroad could be exposed to widening volatility, as the virus comes as a factor to escalate uncertainties in the short run until specific analysis on the pace of its spread and risks has been made.”

The Bank of Korea (BOK) also considers the Omicron variant as the biggest factor determining future decisions by the U.S. Fed’s tapering. The Korean central bank also expected the Fed to take a dovish turn on a near-term basis due to the variant.

“Concerns on the Omicron variant lowered the possibility of the Fed’s speedy push for tapering,” the BOK said in a report released Monday. “The Fed is expected to show a dovish attitude from a short-term perspective.”

Given that the Omicron spread is still in its early stages, global financial authorities will maintain a “wait-and-see mode” before taking concrete actions, according to economists.

The BOK raised its key interest rate by 25 basis point last week to 1 percent. BOK Governor Lee Ju-yeol also left open the possibility of pushing for another rate hike as early as January or February 2022 to curb rising household debt.

Chances are the central bank may delay the timeline if the Omicron variant spread becomes a big risk factor to the global economy.

“Now is the time for the global economy to watch more on the pace of the Omicron spread, even if the variant emerges as a new risk threatening the living with the coronavirus schemes here and abroad,” Hi Investment & Securities analyst Park Sang-hyun said.

“In other words, we need to pay attention to the pace of Omicron transmission, vaccination effects and how strictly countries resume their entry restrictions in response to the virus spread.”

It is hard to predict in detail how the new variant will cast an influence on supply disruptions and inflationary pressure, so the global economy needs to have more patience and closely watch the future course of the virus, Park said.

Despite the global preference for safe assets, the won-dollar exchange rate slightly dropped Monday with the Korean won falling 0.3 won against the dollar closing at 1,193 won per greenback. But the exchange rate started with a gain of 2.2 won on weakening demand for risky assets.

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