Investors Expecting a Market Rally
Hot money in the South Korean stock market totaled an all-time high of 124,090.6 billion won at the end of last month with a month-on-month increase of 8,766.3 billion won. This has to do with the supplementary budget the South Korean government recently prepared and expectations that the Bank of Korea will lower the key rate soon. For reference, the previous high is 117,933.9 billion won, which was recorded at the end of January 2018.
The new high reflects investors’ expectations that global economic stimulus packages will result in stock market rallies after the Fed cut rates by half a percentage point to 1 percent to 1.25 percent on March 3. The European Central Bank and the Bank of Japan are expected to follow suit and increase their asset purchase to cope with the spread of COVID-19.
The Bank of Korea is forecast to do so in an extraordinary Monetary Policy Committee meeting before the next regular meeting scheduled for April 9. The supplementary budget, in the meantime, amounts to 11.7 trillion won, which is the largest amount in the history of the South Korean government’s supplementary budgets for the purpose of infectious disease control.
After the SARS and MERS outbreaks in the past, the Korea Composite Stock Price Index rebounded after a temporary fall. Specifically, after the SARS outbreak in late 2002, the index dropped from 620 points to 510 points until March 2003 and reached 810 points at the end of 2003. In 2015, the first MERS infection was confirmed in May, the index dropped from over 2,120 to 1,820 until August with the number of confirmed infections increasing, and the index closed at 1,960 or so at the end of that year.
More recently, the index remained above 2,200 until Feb. 19 this year and dropped to 1,987.01 at the end of that month amid the spread of COVID-19. Then, the index rebounded from the lowest level since September last year and gained more than 2 percent and almost reached 2,060 on Mar. 4.