After surging past the 6,300 level, the KOSPI plunged to the 5,500 level on fallout from the Middle East crisis. The unrest in the region is expected to weigh on investor sentiment this week (Mar. 9–13) as well. Still, experts said that after a short-term shock, investors are likely to shift their focus back to macroeconomic indicators and corporate earnings.
Last week (Mar. 3–6), Korea's stock market saw an extreme "roller-coaster session" due to repercussions from U.S. and Israeli strikes on Iran. The KOSPI, which opened at 6,165 points on the 3rd, slid intraday to 5,059 on the 4th, showing swings of about 1,000 points. As global oil prices jumped, risk asset sentiment deteriorated, and the steep gains in the KOSPI to date spurred profit-taking.
Volatility in the KOSDAQ market was also at a record level. The KOSDAQ index whipsawed between the 970 and 1,200 levels, and on the 4th and 5th it fell 14% in a day and then rose 14% the next day, repeating sharp swings.
◇Short-term volatility inevitable on Middle East turmoil
Experts expect the shock from the U.S. and Israeli strikes on Iran to gradually ease. However, they said the path of oil prices, depending on whether the Strait of Hormuz is blocked, could affect the stock market. The Strait of Hormuz handles 20% of the world's crude, and a continued blockade could affect not only oil prices but also global financial asset prices.
Jung Hae-chang, a researcher at Daishin Securities, said, "Due to the Middle East crisis, the KOSPI fell to 5,059, equivalent to a forward price-earnings ratio (PER) of 8.06 times," adding, "This falls within the valuation support zone formed after the 2008 global financial crisis, suggesting the worst has been partly priced in."
However, the researcher said, "There is a possibility of hard-line remarks or limited military actions to boost negotiating leverage during talks, making short-term volatility unavoidable," and added, "It is necessary to closely monitor whether the Strait of Hormuz is blocked and the resulting trends in oil and natural gas prices."
Some analysis suggests the Middle East crisis could calm relatively quickly. Moon Nam-jung, a researcher at Daishin Securities, said, "The fact that the United States and Israel eliminated Iran's supreme leader Ayatollah Khamenei shortly after the strikes is a factor limiting the reach of this geopolitical crisis," adding, "With anti-Iran sentiment spreading as Iran indiscriminately attacked neighboring Gulf states, there is a possibility that, in as little as one to two weeks or at the latest within a month, the interim leadership will choose full surrender."
◇Fed's inflation caution rising… focus on CPI and other economic indicators
If Middle East risks do not escalate further, the market's focus is expected to gradually shift to macroeconomic indicators. This week, Korea, the United States, and China will release key economic indicators.
On the 9th, China's consumer price index (CPI) and producer price index (PPI) will be released, and on the 10th, Korea's preliminary growth rate for gross domestic product (GDP) in the fourth quarter of last year will be disclosed. On the 11th, the U.S. February CPI, and on the 13th, the U.S. fourth-quarter GDP growth rate, are scheduled to be released.
Cho Byung-hyun, a researcher at Daol Investment & Securities, said, "Ahead of the Mar. 17–18 Federal Open Market Committee (FOMC), inflation caution is rising within the Fed," adding, "After Iran's attack, oil has climbed sharply above $70 per barrel, so CPI could come in higher than expected."
Korea's stock market fundamentals could also be reassessed. Cho said, "Korea's exports in February were much stronger than expected," adding, "If strong export momentum continues in March, centered on semiconductors, SSDs, and shipbuilding, earnings forecasts for corporations could be revised up further during the first-quarter earnings season."
Key corporate indicators to gauge the growth potential of the artificial intelligence (AI) industry are also on deck. On the 9th, Oracle will release fiscal year third-quarter results. The market expects revenue of $16.88 billion and earnings per share (EPS) of $1.70.
On the 10th, TSMC's monthly sales will be disclosed. In its prior earnings release, TSMC guided this quarter's revenue at $34.8 billion to $35.8 billion. If results top market expectations, it could positively affect sentiment toward semiconductor and AI-related investments.
◇"Anti-stock suppression bill" proposed… focus on corporations with PBR below 1
As a domestic policy catalyst, the "anti-stock suppression bill" is being discussed. The Democratic Party of Korea on the 6th proposed what is being called the "anti-stock suppression bill," which would require listed companies with a price-to-book ratio (PBR) below 1 for two or more fiscal years to disclose plans to enhance corporate value, such as disposing of treasury shares or improving business structure.
A PBR below 1 means a company's market capitalization is lower than its book value in the event of liquidation.
Na Jeong-hwan, a researcher at NH Investment & Securities, said, "The Democratic Party plans to push an 'anti-stock suppression bill' similar to the Tokyo Stock Exchange's value-up program, which required companies with PBRs below 1 to disclose measures to enhance corporate value," adding, "This could serve as a driver for gains in the domestic stock market."