As forecasts emerge that the fallout from U.S. and Israeli airstrikes on Iran will be prolonged, the domestic stock market has swung sharply for two straight days. In the securities industry, there are projections that the market's direction will diverge depending on whether the "prolonged war" scenario unfolds.
In particular, in a "triple weakness" in which stocks, bonds, and the won all fall, inflation fears are piling on, maximizing market uncertainty.
According to the Korea Financial Investment Association on the 4th, Government Bond yields rose (bond prices fell) the day before, on the 3rd. The 10-year Treasury yield, a long-term rate benchmark, rose 14.8 bp (1 bp = 0.01 percentage point) to 3.594%, and the 20-year rose 14.5 bp to 3.653%. The across-the-curve jump was the biggest since Oct. 4, 2023, when Asia's government bond markets shook on concerns over a potential U.S. federal government shutdown.
The won-dollar exchange rate is also whipsawing. Overnight, it broke through the psychological threshold of 1,500 won and surged to 1,506 won. It is currently fluctuating in the 1,480-won range. A widespread shift to risk-off is a major factor.
Not only stocks, which are classified as risk assets, but also bonds and the won are all falling. Lee Sang-heon, Director General at iM Securities' research center, said, "A triple weakness could lead to stagflation, where prices rise while growth is sluggish."
Concerns are growing that the latest war will heighten geopolitical uncertainty in the Middle East and drive a sharp spike in global oil prices. Because a significant share of the world's seaborne crude flows through the Strait of Hormuz, analysts say that even without an actual blockade, the mere presence of a risk premium could exert structural upward pressure on oil.
Indeed, Iran on the 4th (local time) reaffirmed its intent to blockade the Strait of Hormuz, saying at least 10 ships had come under missile attack there.
An Ye-ha, an analyst at Kiwoom Securities, said, "Korea has a structural characteristic of high dependence on energy imports, so rising oil prices directly channel into import prices and expected inflation."
With Treasury yields surging, warning lights have come on for funding operations at marginal corporations with high liability ratios. As rising government bond yields, which serve as a benchmark rate, translate directly into higher effective interest burdens for companies, concerns are mounting that funding stress risks will intensify.
On top of that, there are growing worries that the war could drag on longer than initially expected. In the United States, the Iran strikes were projected as a "four-week plan," and many in the market viewed a prolonged war as unlikely and the risks as manageable. But anxiety over a drawn-out conflict is steadily rising.
According to the New York Times on the day, Mojtaba Khamenei, the second son of Iran's deceased Supreme Leader Ali Khamenei, is seen as the leading candidate to succeed him after the latest airstrikes. Mojtaba Khamenei is regarded as a key figure representing Iran's hard-line conservative camp.
Kim Seung-hyeok, an analyst at Kiwoom Securities, said, "If events unfold according to the scenario where intensive strikes end the war in four weeks, stocks could quickly recoup losses," but added, "If the war drags on contrary to expectations, inflation fears could widen market declines."
Seo Sang-young, an analyst at Mirae Asset Securities, said, "The possibility of a prolonged war and sustained high oil prices is a burden on stocks," adding, "Won weakness could also act as a negative for foreign inflows."