The KOSPI index, which plunged on the shock of a U.S.-Iran war, has recently been recovering. The KOSPI index, which had fallen to the 5,000 level, recovered to the 5,900 level on the 18th, and defended the 5,760 level even on the 19th, when there were global variables.
Investor attention is focused on whether the KOSPI index can stage another rally like at the start of the year.
First, compared with early this year, the securities industry is not entirely optimistic. JUNGDAWN, a researcher at LS Securities, said, "The stagflation narrative is strengthening," citing ▲ heightened geopolitical risk ▲ inflation concerns ▲ artificial intelligence (AI) disruption ▲ worries about an AI peak-out as reasons.
The geopolitical risk from the Middle East war is highly uncertain in itself, but it is more fatal because it leads to higher oil prices and a retreat in expectations for rate cuts.
There are also concerns that a war between the United States and Iran could drag on. Noh Dong-gil, a researcher at Shinhan Investment & Securities, said, "The lesson from the Russia-Ukraine war is that the war shock was not reflected in asset prices all at once," adding, "What matters is the duration rather than the intensity of the shock."
On Feb. 24, 2022, when the Russia-Ukraine war began, Brent crude surged from $99.1 to $128.2 in 12 days. But the peak of market-based expected inflation was formed much later.
The analysis is that the longer the war lasts, the energy expense shock can belatedly add pressure along the path of expected inflation, prices, and policy.
Concerns are also being raised about the artificial intelligence (AI) industry. A representative case is the "AI disruption theory." The worry is that AI's disruptive innovation will lead to the collapse of revenue models at existing software firms, exposing bad loans to corporations in related industries.
Researcher Jung said, "The AI disruption theory is recently coming to the fore as an issue in private credit," adding, "Concerns about encroachment on the job market are also emerging, but liquidity problems in private credit look more urgent."
Worries also persist about an AI peak-out, meaning the AI industry's growth has topped out. Researcher Jung noted, "It is worrisome how much further the hyperscalers leading AI investment can keep investing," adding, "This is also intertwined with Korea's semiconductor earnings."
LS Securities projected a box range for the KOSPI index. It forecast a 5,000–6,000-point box range through May, with a return to an upward trend after June.
Researcher Jung said, "For a fundamental trend reversal, liquidity policy or demand creation through AI is the key variable," adding, "In particular, around June—when Kevin Warsh, the next chair-designate, is expected to begin a term after Chair Jerome Powell—looks like the time to maintain expectations."
Shinhan Investment & Securities presented three scenarios. For a V-shaped rebound scenario, it saw the KOSPI index needing to break through 5,840 points and the KOSPI200 index 873 points. It also viewed the won-dollar exchange rate as needing to find downside stability around the 1,485-won level.
As its base scenario, it presented a box-range sideways move. This scenario has the KOSPI index moving sideways in the 5,300–5,840-point range and the KOSPI200 index in the 800–873-point range. The exchange rate also remains elevated, and while foreigners' selling pressure eases, they do not fully turn to net buying.