[Vol.84] The Great Lockdown Caused by COVID-19

In 2020, the coronavirus pandemic caused an economic crisis, and the International Monetary Fund(IMF) called it a Great Lockdown. Also last April, West Texas Intermediate futures fell 306 percentage points to -37.63 dollars per barrel, and Korea's KOSPI index fell to 1,400 units.

The first thing that stands out when you look at the economy this year is the fall in oil prices. Until 2018, oil prices rose to 76.41 dollars per barrel based on WTI. As a result, the profitability of shale gas in the United States has increased, allowing the U.S. industry to boom. However, demand for crude oil began to decline as the COVID-19 pandemic reduced factory operation and passenger aircraft operations. As a result, the Organization of the Petroleum Exporting Countries(OPEC) attempted to cut oil production, mainly in Saudi Arabia. However, Russia refused to do so, concerning a rise in oil prices would benefit the US. Then Saudi increase oil production which eventually led to a sharp drop in oil prices. Under these circumstances, oil storage and oil tankers around the world have reached saturation, coupled with oversupply and falling demand, have caused oil prices to plummet.

In March this year, news reports said there were circuit breakers every day due to a sharp fall in stock prices. At one point, the KOSPI fell from 2,200 to 1,400, with the Dow Jones Industrial Average index of the U.S. falling from 29,568 to 18,213. To address this, the U.S. Congress agreed on a 2 trillion dollar stimulus package. Also, the Federal Reserve System lowered its Federal Funds Rate to 0.00-0.25% in a series of rate cuts, along with declaring unlimited Quantitative Easing. The South Korean government has also drawn up a supplementary budget and has declared a six-month ban on short stock selling by the Financial Services Commission. The Bank of Korea also cut interest rates to 0.5 percent.

Despite the plunge, private investment has been on the rise this year. The so-called Donghak ant movement is a phenomenon in which individual investors regard it as an opportunity to buy low-end stocks and buy blue-chip stocks in the market where institutional investors and foreign investors exit. Securities firms' investment deposits exceeded 50 trillion won as of August, and the Average Daily Trading Value more than tripled from last year to about 30 trillion won in August. In particular, the number of new investors in their 20s and 30s increased, and 1.3 million new securities accounts were established in March this year alone. In the crash, individual investors prefer investing in U.S. stocks such as the NASDAQ, as well as Korean stocks centered on the KOSPI. While the existing KOSPI is called BOXPI and has only been up and down in certain sections, U.S. stocks are growing with an upward trend in the long term, and many promising companies are listed. Tesla, a leading electric car company, held a total of 3671.4 million dollars in shares with more than 1.5 billion dollars in the net purchase by individual investors (as of August 27), giving it a larger stake than the existing top 10 shareholders. Also, individual investors are making direct investments in technology, including Apple, Microsoft, and Alphabet through August this year. Under these circumstances, private investments aimed at "big deal" using leverage also surged, leading to securities firms suspending their mortgage loans.

The move by individual investors was assessed to attain a measure of success, with stock prices rising again since April. In June, the KOSPI recovered to the 2,000-point level, and the U.S. NASDAQ index surpassed 10,000 for the first time in history. In particular, Apple's market capitalization surpassed 2 trillion dollars, which is equivalent to the Gross Domestic Product of Italy (2.73 trillion dollars), a G7 country. The rise in stock prices came as people began to look for new investment destinations as benchmark interest rates fell, and people invested in COVID-19, expecting the IT and Bioindustries to benefit.

However, experts say there is still a risk in the stock market. Nouriel Roubini, who teaches at New York University’s Stern School of Business, warned that a double-dip could come without sufficient support in the absence of a vaccine. The prediction comes as the real economy is still in a slump as the COVID-19 is generating secondary pandemics, while containment measures are being implemented again when the vaccine has yet to be developed. Also, some highly sought-after technology stocks have also been embroiled in scandals about the authenticity of technology that they have and considered to have an overly high valued price that includes future value. In fact, Tesla held a shareholders' meeting called ‘Battery Day’ on September 22 (local time) to introduce their battery technology and future vision, but its share price fell 10.34 percentage points as the presentation failed to meet investors' expectations for a quantum jump on battery technology. In addition, stock prices plunged due to a series of allegations of technology by companies such as Nicola, a hydrogen car company, and Nanox, a medical venture company

Earlier this year, the global economy has fallen due to the spread of COVID-19 and lockdown by the government around the world to prevent a pandemic. Now governments try to recover their economy, and it is gradually recovering later this year. In particular, Russia recently approved Sputnik V, a COVID-19 vaccine developed in Russia. Also, Pfizer, a U.S. pharmaceutical company, reports that the mid-term result of their Clinical Test - Phase III about the COVID-19 vaccine is very successful on November 9(local time). Those who take a positive view of this prediction predict that the development of the vaccine will soon bring an end to the COVID-19, but are not yet sure. Although optimism prevails in the economy now, we should be careful about it as the pandemic can always recur until the vaccine is fully developed.