US-Iran feud likely to weigh on Seoul bourse

Mideast tensions reignite appetite for gold, US dollar

By Lee Min-hyung

Escalating military tension between the United States and Iran will revive volatility in the local equity market by constraining its projected rebound in 2020, experts said Monday.

Outstanding short-term damage is not expected from the intensifying conflict between the two countries, but this is a clear negative factor for the stable growth of the stock market, they said.

The analysis came amid heightened external uncertainty in the wake of the U.S. troops' assassination of a top Iranian commander Jan. 3. With Iran threatening to retaliate against the U.S. military, concerns are growing over the possibility of the outbreak of war.

“The stock market will remain more sensitive to issues stemming from the uncertainty in that Iran is expected to engage more in its regional provocation and conflicts (against the U.S. troops),” Meritz Securities analyst Lee Jin-woo said.

On Monday, the benchmark KOSPI dropped by 21.39 points or 0.98 percent to close at 2,155.07 from the previous close amid the intensifying external risk. The tech-heavy Kosdaq also dipped by 14.62 points or 2.18 percent to 655.31.

But as Iran has yet to take a countermeasure against the U.S., the market will continue to take a wait-and-see approach over the uncertainty, he pointed out.

“The uncertainty may last a long time in accordance with the level of Iran's possibly upcoming retaliatory measure,” he said.

Beset by the stock market fall, the Korean won extended its losing streak for the third consecutive day, Monday. It closed at 1,172 won per dollar, down 5.0 won from the Friday close.

With the dispute in the Middle East coming to the fore as another crucial external risk factor, the U.S. dollar, deemed as one of the safest assets, is showing signs of enhanced valuation.

Coupled with the U.S. dollar, the price of gold is on an upward spiral. Gold was traded at 54,305.26 won per gram Nov. 12, the lowest in the latter half of 2019.

The price for gold did not bounce back until the end of last year on hopes of an end to the trade war between two of the world's largest economies.

But the gold price soared to 59,263.51 won per gram Jan. 6, as investors prefer the safe asset amid the worsening external political outlook.

The growing market concern that the U.S.-Iran risk factor may be prolonged throughout 2020 is raising valuation for safe assets, experts said.

“Safe assets reacted sensitively to the issue, as investors are taking into consideration that the Iran risk factor may last for a longer period of time,” Hi Investment & Securities economist Park Sang-hyun said. They also prepare for the worst-case scenario represented by the potential military conflict between the two countries, according to the analyst.