[Good Morning Markets] US-Iran Risks Remain Limited... KOSPI Expected to See Increased Volatility

On March 3, the KOSPI is expected to see increased volatility due to risks stemming from the war in the Middle East.

In the previous session on the New York Stock Exchange, the Dow Jones Industrial Average closed at 48,904.78, down 73.14 points (-0.15%) from the previous trading day. The S&P 500 index finished at 6,881.62, up 2.74 points (0.04%), and the tech-heavy Nasdaq Composite closed at 22,748.86, up 80.65 points (0.36%) from the previous session.

Amid escalating tensions in the Middle East, following large-scale airstrikes by the US and Israel and Iran's retaliation since February 28, the New York stock market has shown that the negative impact has been limited. The market believes that this situation is likely to continue for several weeks, rather than being resolved in the short term.

In particular, since the airstrikes, it has been reported that the number of ships passing through the Strait of Hormuz has sharply declined, and concerns over global oil supply disruptions are escalating as news emerged that Iran attempted a drone attack on Saudi Arabia's oil facilities. As a result, the price of WTI surged by roughly 7% in just one day, soaring to the low $70-per-barrel range. This marks a steep increase compared to the high $50-per-barrel levels at the beginning of the year.

There are also concerns that, should the war become prolonged, inflation risks could once again weigh on the stock market, much like the situation observed during the Russia-Ukraine crisis in 2022.

However, historical precedents show that even during the 1st to 4th Middle East wars, global stock markets tended to recover gradually after the initial shock. Considering past lessons, the capacity of governments to respond, and the possibility of oil-producing countries increasing output, analysts believe that the current geopolitical risks are unlikely to lead to a sustained downward trend in the stock market. The Korean government has also mentioned a liquidity support plan amounting to 100 trillion won.

In the domestic stock market, the tug-of-war over supply and demand between foreign and individual investors has become a key variable. Last month, foreign investors consistently engaged in large-scale net selling. On a monthly basis, foreigners recorded net sales of 21 trillion won, while individuals made net purchases of 4 trillion won. Through financial investments (including ETFs), individuals also bought a net 16 trillion won, supporting the index.

On February 28 in particular, the imbalance in supply and demand was extreme. Foreign investors recorded net sales of 7 trillion won in a single day, setting a new daily record for net selling since 2000. In contrast, individuals recorded net purchases of 6.2 trillion won on the same day, the second-largest daily net purchase after February 5, when the figure was 6.8 trillion won.

As a result, the KOSPI surged by 19.5% in February, entering the 6,200-point level. This suggests that individuals' aggressive buying strategy has yielded short-term results. The market is paying attention to the possibility that, this week as well, large-scale net buying by individuals-driven by FOMO (fear of missing out) amid a rising market-will continue.

However, there is growing concern about the index level. Technically, the KOSPI is showing signs of overheating, and external variables such as Middle East geopolitical risks, Broadcom's earnings related to the AI industry, and macroeconomic uncertainty surrounding US employment data are accumulating.

Han Ji-young, a researcher at Kiwoom Securities, said, "Large-scale capital inflows from individuals may serve to support the lower end of the index, but it is difficult to rule out the possibility of increased intraday volatility due to external factors." He added, "Even if supply and demand provide downside rigidity, profit-taking after a sharp short-term rally, coupled with external risks, could lead to significant price swings in the index."

This content was produced with the assistance of AI translation services.