After surrendering the 5,800 level on the 3rd due to a Middle East shock, the KOSPI plunged more than 10% intraday and slid to the 5,100 level. As the U.S.-Iran armed clash edges toward a full-scale war, market attention is shifting beyond hopes for a short-term rebound to where the "end of the volatility market" might be. The securities industry is analyzing the KOSPI's path under three compressed scenarios depending on how this risk unfolds.
According to the Korea Exchange (KRX) on the 4th, the KOSPI index, after tumbling more than 7% the previous day, fell more than 10% again and has been fluctuating between the 5,100 and 5,300 levels. The won-dollar exchange rate opened at 1,479 won, up 12.9 won from the previous trading day, and in overnight trading it even topped 1,500 won. This is the first time in 17 years.
As the fallout from Iran drags on, investors are turning their focus to whether the market decline will become entrenched. The key variable is the normalization of traffic through the Strait of Hormuz. The Strait of Hormuz is a critical sea lane through which about 20% of the world's crude oil shipments pass, and whether vessels can pass is seen as the biggest inflection point that dictates financial market volatility, including energy prices and exchange rates.
In the best case, an energy normalization scenario is expected. Noh Dong-gil, an analyst at Shinhan Investment & Securities, said, "Even if the war continues, if the blockade of the Strait of Hormuz is lifted, LNG and refining disruptions would return to normal in a short period, reducing the oil price premium and, along with exchange rate stability, slowing foreign selling." The fact that U.S. President Donald Trump said the previous night, "If necessary, the U.S. Navy will begin escorting tankers transiting the Strait of Hormuz as soon as possible," lends weight to this scenario.
The second is a low-intensity entrenchment scenario. Military clashes continue but large-scale escalation is avoided, and Hormuz remains a risk zone without a legal blockade, with insurance premiums and freight rates stuck at high levels. Park Sang-hyun, an analyst at iM Securities, said, "If President Trump fails to neutralize Iran's resistance within a week, the odds of a protracted standoff appear to increase." In this case, oil prices would move sideways at elevated levels, and the index would likely remain range-bound with deeper sector divergence.
The securities industry advises focusing on sectors such as semiconductors and refining-chemicals during a range-bound phase. Meritz Securities said in a report the same day, "In semiconductors, the DRAM cycle still has not even reached the midpoint," adding, "Supply-demand may not balance until mid-2027." On refiners, it said, "With reduced supply of downstream products, prices of petroleum products are expected to show strong outperformance."
Lastly, there is the case where disruptions to the real economy widen. If traffic is structurally curtailed and oil and gas freight rates surge together, the risk of stagflation—worsening inflation and slowing growth at the same time—could materialize. In this case, with another jump in the exchange rate and re-accelerating foreign capital outflows, some predict the KOSPI index could fall below the 5,000 level.
Noh said, "If the earnings cycle weakens, the defensive strength of the KOSPI's earnings power (EPS) at the lowest PER level of 8.7 times (about 5,051 points on a KOSPI basis) formed after stepping up a rung could also weaken," adding, "If EPS is revised down (due to real-economy disruptions), even applying the same PER could open the index to below the 5,000 level."