For a month since the U.S. and Israel invaded Iran, Korea's stock market has been on an extreme "roller coaster." It has repeatedly plunged on fears the war will drag on and rebounded on hopes for a cease-fire. Even in the securities industry, which initially predicted it would end "within a month," voices warning of a prolonged conflict have recently gained traction.
The KOSPI 5000 level is on the brink. 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 sharply since the Iran war broke out and has fallen more than 19% through the day.
In the early days of the war, the securities industry saw a high likelihood it would remain a short-term clash. That was because expectations were high that concerns about disruptions to crude supply would ease quickly after U.S. President Donald Trump said the U.S. military would escort oil tankers through the Strait of Hormuz. Even in unfavorable conditions, there was an outlook that, without a Hormuz blockade, the market would continue with high freight rates and sector divergence.
However, developments are moving in a different direction than expected. With the Strait of Hormuz effectively blocked and international oil prices moving in the $90–$100 range, the securities industry is increasingly saying the market needs to prepare for a protracted conflict. Yoon Jae-sung, a researcher at Hana Securities, said, "The chances of the Strait of Hormuz reopening in the short term are low, and the conditions Iran has presented are difficult for the U.S. and Israel to accept," adding, "With negotiations limited, the likelihood the war will drag on is higher."
The market is pointing to early April as the next inflection point. The grace period for talks proposed by President Trump ends on Apr. 6, and on the following day, Apr. 7, Samsung Electronics is scheduled to announce its preliminary first-quarter results. It is a moment when both the easing of geopolitical tensions and the performance of a key company in the domestic market will be confirmed simultaneously.
The most positive scenario is that a negotiation framework is set around Apr. 6. Seo Jeong-hoon, a researcher at Samsung Securities, explained, "Even within the U.S. Republican Party, the possibility of deploying ground forces is seen as low at around 20%, and if the grace period is extended, it would deal a fatal blow to President Trump's credibility, so the possibility of an exit via negotiations remains high."
However, some expect that if the war drags on as a localized conflict, the market's decline could deepen. Yuanta Securities Korea said that if international oil prices move around $90–$100 per Barrel and localized clashes coexist with expectations for talks, the KOSPI could fall to the 5,000 level, about 20% of the maximum drawdown (MDD) over the past two years.
It also said the situation could worsen if oil stays above $100 for an extended period and the possibility of a large-scale deployment of U.S. ground troops comes to the fore. In that case, as the conflict spreads across the Gulf region, the risk of "stagflation," where recession and inflation appear simultaneously, would rise, and the KOSPI's lower bound could retreat to the 4,400 level, about 30% MDD, Yuanta Securities Korea projected.
In particular, if the war is prolonged and inflation rises, it could spur the Central Bank to tighten currency policy, adding to the burden. Jeon Byung-ha, a researcher at NH Investment & Securities, said, "As the high oil price phase persists and logistics disruption risks intensify, we are seeing policy hand-wringing in major Central Bank meetings," adding, "If it drags on with the deployment of ground forces, Central Bank policy patience to control inflation will gradually reach its limits."
The worst-case scenario cited by the securities industry is that U.S. mediation fails and the conflict escalates into a full-scale war. That includes the U.S. and Israel declaring an all-out war on Iran, or clashes between Iran and Israel expanding into a full-scale war. In this case, as a global recession materializes and demand for cash-like asset rises, they say quantitative analysis of the stock market would be difficult.
Still, despite prices being heavily swayed by external variables, some say corporations' fundamentals remain solid. Shinyoung Securities assessed that from a valuation perspective, the KOSPI's 12-month forward price-earnings ratio (PER) is around 8.2 times, still below the recent 10-year average of 10.3 times.