The Stock Market That Withstood Every War... Now Hit by Inflation and Tightening: HealthPee and HealthDoc

During Past War Crises, Stock Prices Fell but Recovered Smoothly Afterward
Oil Prices Surge Amid Russia Economic Sanctions Pressure... Inflation and Tightening Fears Prevail

[Asia Economy Reporter Lee Seon-ae] As the Russia-Ukraine conflict escalates to a critical crisis, global stock markets are fluctuating wildly. On the 14th, Asian stock markets plunged around 2% in unison, turning pale after being affected by the sharp decline in the New York stock market on the 11th (local time).

Looking at stock markets during wars since 1990, markets tended to decline as the probability of war increased before the outbreak, but showed an upward trend after the war actually began. The stock markets successfully overcame war phobia. However, the current concern over Russia's invasion of Ukraine involves a more complex calculation due to the emergence of geopolitical risks from oil-producing countries. With the tightening fears from the U.S. Federal Reserve (Fed) already present, the accumulation of negative factors (inflation and tightening reinforcement) is expected to increase volatility in global stock markets.

◆War Risks, Markets Have Recovered Well= On the day of the 9/11 terrorist attacks in 2001, the S&P 500 plunged 11.6% but recovered all losses within 31 trading days. Similarly, when an Iranian general was killed in an airstrike in 2020, the S&P 500 recovered within 5 trading days, and when U.S. troops withdrew from Afghanistan in 2021, the downward trend reversed within 3 trading days. The period of market recovery was also not long when European Western countries intensified sanctions following Russia's occupation of the Crimean Peninsula. The S&P 500 and KOSPI underwent about a month of consolidation before showing an upward trend.

Kim Dae-jun, a researcher at Korea Investment & Securities, analyzed, "Since 1990, Russia was involved in the First and Second Chechen Wars and the Ukraine Crimean Peninsula crisis, but global stock markets showed indifference to these issues. Expanding the view to include multinational forces such as the Gulf War and Iraq War involving the U.S., there is no long-term evidence that war and stock markets have an inverse relationship, so the impact of war on markets can be considered limited."

When wars are predictable, market risk impact is lower. Hwang Soo-wook, a researcher at Meritz Securities, said, "Stock prices before World War II, the Gulf War's Desert Storm operation, the Afghanistan War, and the Iraq War reflected the possibility of war and went through a correction phase before continuing an upward trend. In contrast, unexpected wars such as the Pacific War (Pearl Harbor attack), Korean War, and Gulf War saw stock price corrections lasting at least 10 trading days after the outbreak. Currently, it is difficult to gauge whether an actual war will occur in Ukraine, but global stock markets are reflecting the possibility of war."

◆Variable is Oil Prices: "Inflation and Tightening"= The reason global stock markets are reacting so sensitively to this situation is due to inflation and tightening reinforcement underlying the war.

Concerns are growing that international oil prices will exceed $100 per barrel for the first time since 2014 due to fears of Russia's invasion of Ukraine. On the 11th (local time), March West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange rose 3.6% to close at $93.10 per barrel, the highest in seven and a half years. This reflects expectations that Western countries will impose various economic sanctions on Russia to resolve the Ukraine crisis. If pressure from the U.S. and Western countries intensifies, Russia, the world's second-largest oil market share holder, may face disruptions in oil supply.

The problem is that this could further increase inflationary pressures hitting global stock markets. If oil supply difficulties arise, price increases will likely continue, leading to a vicious cycle of tightening reinforcement. In fact, fears that the sharp rise in international oil prices due to concerns over Russia's invasion of Ukraine could trigger stagflation (economic stagnation with rising prices) are weighing heavily on global stock markets.

The market fears a prolonged geopolitical risk from Russia. Past data also shows that the region of conflict and the duration of risk affect the extent of market corrections and recovery periods. Lee Jae-sun, a researcher at Hana Financial Investment, analyzed, "The Gulf War in 1990 took about six months to resolve. Although the absolute level of WTI was low, it rose up to 70% after the outbreak, and the U.S. 10-year Treasury yield also rose about 70 basis points. The time taken for the S&P 500 and KOSPI to recover most of their losses was about 6 to 7 months."

Recovery of the domestic stock market seems distant. Terms like Hellspi (Hell + KOSPI) and Helldak (Hell + KOSDAQ) are even being used. Since the start of the new year until the 11th, when the war outbreak risk intensified, the KOSPI has fallen over 7%, and the KOSDAQ has dropped by 15%. Particularly, the KOSDAQ ranks last in decline among global stock markets. If foreign capital continues to withdraw, further declines are likely, and it is expected to take a long time to recover.

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