For a month since the U.S. and Israel's invasion of Iran, Korea's stock market has been on an extreme "roller coaster." Fears of a prolonged war send shares plunging, while hopes for a cease-fire spark rebounds, a whipsaw pattern that keeps repeating. Even in the securities industry, which initially predicted an end "within a month," voices warning of a protracted conflict have recently gained traction.
The KOSPI 5,000 level is teetering on the edge. On the 31st, the KOSPI closed at 5,052.46, down 224.84 points (4.26%) from the previous day. The index, which was 6,244 at the end of February, has swung wildly since the Iran war broke out and had fallen more than 19% as of the day.
In the early days of the war, the securities industry saw a high likelihood that it would remain a short-term clash. That was because there were strong expectations that concerns over disruptions to oil supplies would quickly ease after U.S. President Donald Trump said the U.S. military would escort oil tankers passing through the Strait of Hormuz. Forecasts also emerged that, even in unfavorable conditions, without a blockade of Hormuz and with freight rates staying high, a sector-rotation market would unfold.
But developments are moving in a different direction from expectations. As the Strait of Hormuz is effectively blocked and international oil prices hover in the $90–$100 range, voices in the securities industry are growing that the market should prepare for a prolonged conflict. Yoon Jae-seong, a researcher at Hana Securities, said, "The odds are low that the Strait of Hormuz will reopen in the short term, and the conditions Iran has presented are at a level the United States and Israel would find hard to accept," adding, "With limited room for talks, the probability of a prolonged war is higher."
The market is pointing to early April as the next inflection point. That is because the grace period for talks proposed by President Trump ends on Apr. 6, and the next day, Apr. 7, Samsung Electronics is scheduled to announce its preliminary first-quarter results. It is the moment when both the easing of geopolitical tensions and the results of a key company in the domestic market are confirmed at the same time.
The most positive scenario is that a framework for negotiations is set around Apr. 6. Seo Jeong-hun, a researcher at Samsung Securities, explained, "Even within the U.S. Republican Party, the likelihood of deploying ground troops is seen as low at about 20%, and considering that an extended grace period would deal a fatal blow to President Trump's credibility, the possibility of an exit through negotiations remains high."
However, some expect that if a localized war drags on, the market's decline could deepen. Yuanta Securities Korea said that if international oil prices move in the $90–$100 per Barrel range and localized clashes coexist with expectations for talks, the KOSPI could be pushed down to the 5,000 level, about 20% of the maximum drawdown (MDD) over the past two years.
It said the situation could worsen if oil stays above $100 for a long period and the possibility of a large-scale U.S. ground deployment comes to the fore. In that case, as clashes spread across the Gulf region, the risk of "stagflation," where recession and inflation appear simultaneously, would grow, and the KOSPI's lower bound could also retreat to the 4,400 level, about 30% MDD, Yuanta Securities Korea projected.
In particular, if a prolonged war pushes prices higher, it could also spur the Central Bank to tighten currency policy, which is another burden. Jeon Byung-ha, a researcher at NH Investment & Securities, noted, "As the phase of high oil prices persists and logistics disruption risks build, policy deliberations are evident at major Central Banks' meetings," adding, "If the conflict is prolonged by ground force deployments, Central Banks' policy patience in trying to control inflation will gradually reach its limit."
The worst-case scenario cited by the securities industry is a full-scale war after U.S. mediation fails. That would be a situation in which the United States and Israel declare all-out war on Iran, or clashes between Iran and Israel escalate into a full-scale conflict. In that case, with a global recession materializing and demand rising for cash-like asset, quantitative analysis of the stock market would be difficult, the outlook says.
However, despite prices being heavily swayed by external variables, there is an assessment that corporations' fundamentals remain solid. Shinyoung Securities diagnosed that from a valuation perspective, the KOSPI's 12-month forward price-earnings ratio (PER) is at about 8.2 times, still below the recent 10-year average (10.3 times).