[Good Morning Stock Market] Israel-Palestine War Concerns... KOSPI Expected to Start Lower

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On the 16th, the KOSPI is expected to start lower due to negative impacts from geopolitical concerns arising from the war between Israel and the Palestinian militant group Hamas.

On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,670.29, up 39.15 points (0.12%) from the previous session. The Standard & Poor's (S&P) 500 index closed at 4,327.78, down 21.83 points (0.50%), and the Nasdaq index ended at 13,407.23, falling 166.99 points (1.23%) from the previous session.

The New York stock market opened higher following strong earnings reports from major banks released before the market opened. JPMorgan Chase, the largest U.S. bank by assets, reported quarterly net income and operating revenue that significantly exceeded expectations. Wells Fargo also posted quarterly net income and operating revenue above forecasts. Shares of JPMorgan and Wells Fargo rose more than 1% and 3%, respectively.

However, gains narrowed and the market closed mixed due to worsening October University of Michigan consumer sentiment, rising inflation expectations, and concerns over the escalation of the Israel-Hamas conflict. Notably, the volatility index (VIX), known as the fear gauge, surged over 20%, and international oil prices rose more than 5%, leading to broad strength in energy stocks.

The Morgan Stanley Capital International (MSCI) Korea Index Exchange-Traded Fund (ETF) and MSCI Emerging Markets Index ETF fell by 0.46% and 0.37%, respectively. Eurex KOSPI 200 futures declined 0.47%. Accordingly, the KOSPI is expected to open down approximately 0.3% to 0.6%.

Kim Seok-hwan, a researcher at Mirae Asset Securities, stated, “The domestic stock market will be influenced by foreign investors’ risk asset avoidance and preference for safe assets as geopolitical instability in the Middle East intensifies. In particular, the additional upward pressure on the won-dollar exchange rate, which has reached its highest level of the year, will not be favorable for foreign demand.”

He added, “Since rising inflation expectations in the New York stock market negatively affected tech-focused companies’ stock prices, attention should be paid to changes in oil prices, government bond yields, and exchange rates for the time being. In the short term, energy and defense industry stocks as well as volatility movements should be closely monitored.”

Lee Kyung-min, a researcher at Daishin Securities, commented, “Looking at the big picture, the shocks and damages caused by geopolitical risks, oil prices, bonds, and dollar volatility on the financial market have passed their peak. South Korea’s economic indicators are also showing signs of recovery, increasing the weight of new positive factors.”

Meanwhile, the one-month non-deliverable forward (NDF) won-dollar exchange rate in New York was 1,351.07 won, reflecting expectations that the won-dollar exchange rate will start stable.