Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Israel-Hamas war likely to increase demand for safe-haven assets
Dealers work at a dealing room of Hana Bank's headquarters in Seoul as electronic signboards show the benchmark KOSPI and the won-dollar rate, Friday. Yonhap
By Yi Whan-woo
The surprise attack by Hamas militants on Israel, Saturday, is prompting speculation that mounting tension in the Middle East will stoke demand in Seoul for gold, the U.S. dollar, U.S. Treasury bonds and other safe-haven assets.
The attack adds to the tense geopolitical environment that was already heightened due to the war in Ukraine, which has had major implications on the financial markets here, as oil prices rose, high inflation continued and the hawkish U.S. rate policy spooked investors.
Under these difficult circumstances, analysts said, Monday, that preference for investors of safe-haven assets is likely to grow in Korea as much as in other countries, and that it can prompt stock and currency markets to plummet.
“The signs of a growing preference for safe-haven assets can be seen across the global financial markets,” Suh Sang-young, an analyst at Mirae Asset Securities, said, noting that oil prices jumped more than 4 percent since Hamas’s attack on Israel.
For gold, the price went up over 1 percent over the cited period, shrugging off the U.S. dollar's strength and the upward spike in U.S. Treasury yield.
According to Bloomberg, the greenback has gained 2.1 percent this year, on the back of the U.S. Federal Reserve’s aggressive rate hike campaign, which pushed the base rate to stand at a 22-year high of 5.25 percent to 5.5 percent.
Correspondingly, the U.S. dollar is heading for a third annual gain ― the longest run since 2016.
Concerning the U.S. Treasury, the 10-year Treasury yield reached a 16-year high.
“Values of all these safe-haven assets can continue to go up, considering the course of the conflict in Israel is certainly anticipated to get more turbulent,” said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
Joo Won, deputy director of the Hyundai Research Institute, thinks that the outflow of foreign capital from the financial markets can become severe if the Fed resumes its rate hike campaign in the name of taming inflation and that the Korea-U.S. interest rate gap will widen further.
The gap is as high as 2 percent, with Korea’s rate remaining at 3.5 percent since January.
Meanwhile, market observers downplayed concerns that Seoul's financial markets will face repercussions after Korea, in cooperation with the U.S., transferred $6 billion of Iranian profits from oil sales with Korean companies.
The transfer was made after a ban imposed by Washington was lifted.
Former U.S. President Donald Trump and other Republicans tried to cast blame on President Joe Biden, arguing the transfer helped Iran finance Hamas’ attack on Israel.