[ANALYSIS] Omicron variant to sink travel, leisure stocks

Financial authorities set to deliver message to minimize market woes

By Lee Min-hyung

The spread of the Omicron variant will put a damper on travel and leisure stocks despite Korea's introduction of a "Living with COVID-19" scheme.

With major economies ― such as the United States and the United Kingdom ― taking preemptive measures to block the spread of the new variant by reinforcing quarantine measures, the move is feared to weaken investor sentiment on aviation, travel and leisure stocks.

Stock prices of Korean Air and Asiana Airlines ― Korea's two representative airlines ― plunged Friday on escalating concerns over the possible resurgence of the pandemic. Korean Air shares dropped by 3.37 percent on the last trading day from a day earlier. Asiana shares were also hit hard by the widening fear sentiment and closed with a fall of more than 4 percent during the same period.

Starting from early September, domestic travel and aviation stocks showed signs of rebounding on hopes that the Korean government would join the global bandwagon on loosening anti-virus restrictions. But the stocks will lose momentum for an additional rally on reviving fears of the variant and rising infection cases of the coronavirus and the Delta variant after the global society started easing the pandemic restrictions, according to analysts.

"Even if more and more countries are lifting entry bans on travelers who have been fully vaccinated for COVID-19, infection cases are surging across the globe due to Living with COVID-19 schemes," Hana Financial Investment economist Park Sung-bong said. "It will take much more time for major airlines to recover demand for international flights."

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Financial Supervisory Service Governor Jeong Eun-bo speaks during a meeting with leaders of financial firms here, at the Korea Federation of Banks in Seoul, Nov. 3. Yonhap

The external uncertainty comes as a bane for the overall stock market here, but stocks that are reliant on domestic consumption will be affected little by the Omicron factor, they said.

Stock prices in the areas of telecom, clothing and food showed little fluctuation for the past few weeks. The stock price of KT, one of the major mobile carriers here, did not undergo any drastic ups or downs this month. Shares of CJ CheilJedang, one of the nation's representative food companies, also did not fluctuate by a huge margin in November.

But a general consensus is that the benchmark KOSPI will have to face "short-term uncertainty" amid widening Omicron-related fears among overseas investors. The main bourse closed last week with a fall of 43.83 points, or 1.47 percent. To minimize any financial shocks from the external factor, the government and financial authorities are keeping close watch for any unusual signs in the local stock market.

On Nov. 28, the government introduced a quarantine measure on travelers from eight countries ― particularly in southern Africa ― for 10 days, regardless of their vaccination status. Financial watchdogs ― such as the Financial Services Commission and Financial Supervisory Service ― will thoroughly monitor for any signs of volatility in the local financial market.

The financial authorities will deliver such messages to the market as early as next month on investors' fears amid a drastic stock fall in the U.S.

But the Omicron concern will not be long-lasting on hopes that global pharmaceutical firms have initiated their development for Omicron vaccines. Pfizer is reportedly expected to finish developing new vaccines against Omicron in 100 days. Moderna said last week it has started developing vaccines against the new variant.

Given that investors are getting used to the spread of new variants amid the longer-than-expected pandemic shock, there still stands a chance that the Omicron-induced fears will also end up confusing the market for only a couple of months.

But investors here and abroad will have a preference for safe assets ― such as gold and the U.S. dollar ― for the next few weeks on lingering uncertainties surrounding the variant. The dollar gained ground against the Korean won on Friday with a gain of 0.46 percent or 5.5 won from the previous day.

Cryptocurrency prices are also on the decline here on investors' preference on safe assets. Bitcoin was traded at around 69 million won on the local exchange as of Sunday 12:30 p.m., down by 250,000 won from the previous day. The cryptocurrency continued its rally until Nov. 9 when its price set a new high at around 82 million won, but has since plunged down to 70 million won.

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