On the 8th, Korea's stock market surged more than 6% and showed a strong rebound on news that the United States and Iran agreed to a two-week cease-fire. Hopes that geopolitical risks will ease are feeding optimism that the index will retake the 6,000 level.
However, analysts in the securities industry note that for this sharp rise to settle into a sustained uptrend, structural conditions must come first beyond the temporary event effect: a stable exchange rate, lower oil prices, and corporate earnings support.
◇ Prolonged high exchange rate… foreign buying slows on concern over forex losses
According to the Seoul foreign exchange market on the 8th, the won-dollar rate has moved around the 1,500-won level for nine straight sessions. This increases the risk of forex losses (losses from exchange rate fluctuations) for foreign investors. Even if they make money on investments, their revenue shrinks when converting to dollars. While foreign funds have been flowing in on the back of expectations for an improvement in the semiconductor cycle, some say that if the high exchange rate around 1,500 won becomes entrenched, additional inflows will hit a limit.
In fact, foreigners logged net selling for 11 straight sessions in the stock market from the 19th of last month to the 2nd of this month, the longest in about two years and six months since September 2023 (16 sessions). On the 3rd, they turned net buyers of 803.5 billion won, but 508.2 billion won (63.2%) of that was concentrated in Samsung Electronics and SK hynix. On the next trading day, the 6th, they sold 159.6 billion won and returned to net selling.
Kim Sang-bong, an economics professor at Hansung University, said, "If the high exchange rate continues, foreigners will worry about forex losses and shy away from investing in the domestic stock market," adding, "The rate dipped slightly on news of the U.S.-Iran cease-fire, but that is only temporary, and it is hard to see it as a trend of easing the burden foreigners have felt in Korea's stock market."
◇ Middle East risks must be fully resolved… Korea, with high dependence on energy imports, takes a 'critical hit' from high oil prices
It is also hard to say that Middle East-driven geopolitical risks have been fully resolved. International oil prices fell to the $90-a-Barrel level on the cease-fire news, but if tensions return, they could top $100 at any time.
If international oil prices rise, the expense of importing crude from overseas increases, pushing up import values and potentially worsening the trade balance. In an economic structure like Korea's, with high dependence on energy imports, oil price swings have a large impact on the trade balance and the stock market.
Global investment bank (IB) JPMorgan warned that international oil prices could rise to $120–$130 per Barrel in the short term and could exceed $150 if a recovery in Hormuz Strait shipping is delayed until mid-May. Bank of America (BofA) projected that in a scenario assuming a prolonged war, the average second-quarter oil price could climb to $120 per Barrel.
Jeon Yu-jin, a researcher at iM Securities, said, "With more than 40 pieces of infrastructure—including Saudi Arabia and Iraq oil fields, Qatar and United Arab Emirates (UAE) gas fields, major ports, and refining facilities—having taken physical damage so far, normalization will inevitably take time," adding, "As a result, even after the end of the war, it will be quite difficult for some time to again see the $50–$60 per Barrel (WTI basis) oil prices we experienced just a month ago."
◇ KOSPI led by "Samjeon-nix"… warmth needs to spread to other sectors as well
Another structural limitation is the deepening "semiconductor tilt" in Korea's stock market centered on Samsung Electronics and SK hynix. For the index to rise in a sustained trend, some say expectations for earnings improvements need to spread beyond semiconductors to major sectors such as autos, chemicals, and consumer goods.
On the 7th, the combined market capitalization of Samsung Electronics and SK hynix was tallied at 1,816.00442 trillion won. That amounts to about 40% of the total market cap of Korea's stock market (4,526.4649 trillion won. According to Korea Exchange (KRX), the consolidated operating profit of 626 KOSPI-listed companies (excluding 75 in financials, etc.) last year was 244.7882 trillion won, up 25.39% from a year earlier. However, excluding Samsung Electronics and SK hynix, operating profit was 153.9808 trillion won, rising only 10.76% year over year.
Kim Yu-mi, a researcher at Kiwoom Securities, said, "The recent export boom is largely a localized boom centered on specific industries, and the heavy concentration on certain items and high dependence on prices are burdens," adding, "Within a structure highly dependent on semiconductors, if Middle East geopolitical risks and a downturn in the cycle coincide, volatility could increase."