Value context and insight. lkm@koreatimes.co.kr
KOSPI expected to face limited shock from Middle East tensions, won may weaken
From left, Financial Supervisory Service Governor Lee Chan-jin, Bank of Korea Governor Rhee Chang-yong, Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol and Financial Services Commission Chairman Lee Eog-weon attend a policy coordination meeting at Government Complex Seoul, Friday. Yonhap
By Lee Kyung-min
Won feared to weaken toward 1,500 per dollar
The benchmark KOSPI may open lower Tuesday, due to escalating geopolitical tensions between the U.S. and Iran. However, a wider shock would be limited, mitigated by retail investors “buying the dip” to join the semiconductor-driven rally, market watchers said Monday.
However, concerns are rising that the recently stabilized Korean currency could weaken again to the significant threshold of 1,500 won per dollar, affected by surging oil prices.
Some say a full blockade of the Strait of Hormuz could push crude prices up to $130 per barrel. However, this is likely to be offset by accelerated output increases from oil-producing OPEC+ members.
OPEC+ is a coalition of the 12 member countries of the Organization of the Petroleum Exporting Countries (OPEC) plus 10 additional major oil-producing nations, led by Russia. Together, they control roughly 40 percent of global crude production.
According to local media reports, U.S. President Donald Trump suggested the conflict with Iran could take “four weeks or less,” a comment made after strikes hit Iran’s nuclear and military infrastructure over the weekend.
Despite the dramatic headlines, market strategists say KOSPI’s fall will be limited due to retail investor appetite for “bargain buying.”
“The main bourse may open lower Tuesday, apparently due to the ongoing geopolitical shock, but a sharp correction is not likely,” Standard Chartered Bank Korea strategist Hong Dong-hee said.
“The market is likely to bounce back soon, underpinned by retail investors’ strong demand to ‘buy the dip,’ a pattern frequently observed in times of market turmoil in the past.”
A case in point is Feb. 27, when retail investors propped up the benchmark index despite foreign investors’ net selloff of more than 7 trillion won ($4.8 billion).
Retail buying momentum has been building since October last year.
Investors net bought only about 6.2 billion won per day in October, but sharply ramped up purchases to 712.2 billion won per day in November.
Many of them are increasing holdings, driven by a fear of missing out as the benchmark has broken a record 6,300 points.
As for the foreign exchange (FX) market, the heightened geopolitical risk could prompt the Korean won to weaken to the 1,500 level.
Last month, the Korean won averaged 1,447.39 won per dollar based on the 3:30 p.m. closing price.
It was the first time in four months that the monthly average strengthened to hold steady below the 1,450 level.
The Korean currency moved within the 1,420-1,430 range last week, suggesting a trend toward further stabilization.
However, some market watchers say the won could weaken again to the 1,480 range, a level sustained by steady dollar demands from Koreans with U.S. equity holdings.
The government is ramping up its monitoring of supply disruptions, inflation expectations and currency stability.
Government ministries convened emergency meetings to review contingency plans under multiple escalation scenarios involving a prolonged spike in crude prices or renewed pressure on the won.
Finance Minister Koo Yun-cheol instructed officials to strengthen real-time monitoring of energy import flows, FX markets and capital movements, while preparing market stabilization measures.
Bank of Korea Gov. Rhee Chang-yong convened an emergency meeting to assess the geopolitical developments and discuss response measures under various escalation scenarios.
Rhee instructed the establishment of a 24-hour monitoring system to ensure an immediate response to any surge in market volatility, underscoring the central bank’s readiness to act swiftly should financial conditions deteriorate.
Financial Services Commission Chairman Lee Eog-weon has pledged to provide more than 100 trillion won in emergency financial assistance, moving to guard against excessive short-term volatility in equity and bond markets.