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By Anna J. Park
Amid rising uncertainties from the upcoming U.S. presidential election and concerns about the further spread of COVID-19, representative asset prices ranging from stocks to gold seem to be following a downward trajectory.
Both U.S. stocks and Korean stock markets logged bearish movements this month, despite short-term upturns. This month alone, Nasdaq plummeted by 10.8 percent from the start of September until Wednesday's closing; the Dow Jones index also fell by 6.5 percent during the same period.
Korea's benchmark KOSPI fared a little better than U.S. stock markets until mid-September. Yet since the KOSPI index topped 2,443.58 at the closing session of Sept. 15, it went bearish, falling by 6.9 percent over the next seven trading sessions until Thursday's closing at 2,272.55.
Safe-haven asset prices fall in alignment with bearish stock market
What is noticeable is that other representative alternative assets like gold, bitcoin and government bonds ― which tend to move in the opposite direction from stocks ― are also moving in alignment with stock markets.
Gold, the stalwart safe haven asset, is hitting a two-month low this week, finishing its long-held upward trend since last year. Gold prices per ounce slipped to $1,861.60 Wednesday, the lowest level since mid-July. Gold futures also fell by 2.1 percent to $1,868.40 per ounce.
Key cryptocurrency bitcoin's price, also on a downward path this week, stood at $11,069.69 at 5 a.m. Korea time, Sept. 20, but it slid to $10,284.26 as of 2 p.m. Thursday.
The 10-year U.S. Treasury note's movement is not clear as of now. The bond's interest rate increased slightly on Wednesday, standing at 0.69 percent. The increase of the bond's interest rate means the decrease of the bond's value, which is tantamount to a fall in the bond's price. A better-than-expected U.S. consumer sentiment index pushed the Treasury note's interest rates higher, but the stock markets' downward movement limited the rise. Due to such mixed pressures from various factors, the U.S. Treasury note also joined the falling assets.
Market experts see the current situation as the end of the power of liquidity that heated the global stock markets this year.
"Excessive liquidity has been a major driving force of this year's global asset price surge. However, as this month's Federal Open Market Committee (FOMC) meeting lowered the market's expectation about a possibility of further liquidity expansion, most asset prices, ranging from stocks, gold to bitcoin, are falling together," Park Sang-hyun, chief economist at HI Investment & Securities, said Thursday in a phone interview.
"The asset prices will ultimately follow the economy's fundamentals, once liquidity-driven momentum is over. It means, bonds and gold prices will go up again when the economy is bad; if the economy's fundamental elements improve and uncertainties surrounding the U.S. presidential election are removed, risk assets like stocks and raw materials will go up again."
Patience advised with cash in hand
Against this current situation of uncertainties and decreasing liquidity momentum, investors are advised to stay away from high-risk markets and hold onto their cash.
"The best approach at this point would be a wait-and-see attitude. Some companies with great performances could still see their stock prices increase, yet now is the time a cautious approach is needed," said Seo Sang-young, an analyst at Kiwoom Securities.
Some market insiders also point out that while investors need to be prudent, they still should take a proactive attitude for hidden opportunities in the market.
"One needs to be cautious for sure, but a time like this also provides a chance for buy-the-dip. Investors can start gradually increasing the purchase amount of stocks that are backed by solid profits, growth potential and policy momentum," said Lee Jae-sun, an analyst from Hana Financial Investment.
