Recommendation: TACTICAL UNDERWEIGHT
The Wuhan pneumonia panic has battered the Korean stock market. Between January 23 and January 31, over five business days excluding the Lunar New Year holidays, the KOSPI fell 148.24 points to 2,119.01 (-6.54%), and the KOSDAQ fell 45.77 points to 642.48 (-6.65%).
Observing the market convulse, I could not help but regard the reaction as irrational, or at the very least, excessive.
Yes, there will be some negative impact on the economy and on specific industries, but would it truly impair the fundamentals of every industry or firm?
Even if so, for how long? A whole year?
I assume that the impact on business fundamentals would remain limited to, at most, the first two quarters, and that there would be no major concern except for a handful of globally exposed manufacturers with substantial production footprints in China.
However, no one knows exactly when the panic over the Wuhan pneumonia will reach its peak. Therefore, now that the broader uptrend has broken on heavy volume, it would be better to step aside for the time being.
But history also teaches us that panic rarely comes alone; one must identify the opportunities cloaked by panic, especially when the selloff is driven more by sentiment than by fundamentals.
While it is better to wait until the market has clearly bottomed, the end of this ongoing correction will also be the moment to ask whether the old maxim still holds: “Buy the fear and sell the greed."