Will KOSPI breach 3,000 points despite escalating Middle East conflict?

Electronic signboards at Hana Bank in Seoul show the benchmark KOSPI closed at 2,894.62, Friday, down 0.87 percent from the previous trading day. Yonhap

With the KOSPI's climb toward 3,000 points hitting a snag amid growing geopolitical tensions in the Middle East, the benchmark index’s rise this week largely depends on whether domestic policy-driven expectations, which have supported foreign inflows, will continue, according to market analysts, Sunday.

Should the KOSPI break above 3,000, it would mark the first time since October 2021.

According to Korea Exchange, the KOSPI gained 8.19 percent from June 4 when the new government took office, through Thursday. However, it slipped 0.87 percent on Friday, falling below 2,900 amid the armed conflict between Israel and Iran and a wave of short-term profit-taking.

Investor sentiment toward risk assets deteriorated rapidly following Israel’s airstrike on Iran. The won-dollar exchange rate jumped by more than 10 won ($0.01), and international oil prices surged nearly 10 percent.

If the heightened tensions add to growing concerns over a global economic slowdown, foreign capital inflows could be negatively affected.

"The KOSPI is currently in a position to target the 3,000-point level solely through valuation normalization," said Lee Kyoung-min, an analyst at Daishin Securities. "However, caution is warranted, as a series of major domestic and international events this week could increase short-term profit-taking pressure following the recent sharp rise."

Retail sales and industrial production data set to be released in both China and the U.S. in the coming week may partially reflect the impact of U.S.-China trade tensions. Additionally, the conflict between Israel and Iran adds further uncertainty to the market outlook.

To break through the 3,000 mark, analysts said expectations surrounding the new administration’s policies must remain intact. From June 9 to Friday, foreign investors recorded a net purchase of 2.3 trillion won in the KOSPI market, extending their net buying streak to a fourth consecutive week.

"Since the launch of the new administration, expectations for domestic demand stimulus, along with hopes that revisions to the Commercial Act will help resolve the 'Korea discount,' have been key drivers of the KOSPI’s rise," said Na Jeong-hwan, an analyst at NH Investment & Securities. "Policy momentum is expected to extend to domestic demand and investments in industries such as artificial intelligence."