[Good Morning Stock Market] Russia-Ukraine War Fears... Risk Asset Investor Sentiment Shrinks

Russia Orders Troops to Enter Ukraine
Western Countries Oppose, Sanctions Likely to Increase

Russian Stock Index Plummets 13% in One Day
US Stock Market Closed for 'Presidents' Day'

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] As news spreads that Russia has ordered military intervention in Ukraine, the atmosphere is turning toward the realization of war. The market has already priced in this possibility. While the U.S. stock market was closed for Presidents' Day, the Russian stock market closed down 13% reflecting war concerns. Risk asset preference sentiment has significantly contracted. Additionally, uncertainty over the magnitude of the U.S. interest rate hike next month remains unresolved, leading to expectations that the domestic stock market will show a downward trend today.

Ji-young Han, Kiwoom Securities Researcher: "Geopolitical tensions at peak... KOSPI faces downward pressure"

Currently, as the market enters the late stage of the Q4 earnings season, it is reacting more sensitively to macroeconomic and international political situations than to earnings and fundamentals. In particular, the escalating conflict between Russia and Western countries over the Ukraine issue appears to be increasing overall financial market volatility. The KOSPI is also expected to face downward pressure today due to heightened geopolitical tensions.

The reason the Russian stock market plunged more than 10% in a single day is that Western countries are expected to begin full-scale sanctions against the Russian government. Russia currently justifies its stance by claiming that Ukraine is planning to develop its own nuclear weapons for attacks against Russia. Accordingly, Russia opposes Ukraine's NATO membership and demands a ban on the deployment of Western troops around its borders. The day before, Russia recognized the independence of pro-Russian separatist states such as the Donetsk People's Republic (DPR) and the Luhansk People's Republic (LPR), effectively signaling official support for Ukrainian rebels.

The key issue to watch going forward is whether the conflict will remain a localized war in the eastern Donbas region or escalate into a full-scale war involving Western countries. According to major foreign media, Russian President Vladimir Putin has reportedly ordered peacekeeping forces to enter the eastern Donbas region of Ukraine. Both Russia and Western countries are seeking diplomatic solutions rather than military ones, so the likelihood of escalation into full-scale war is low. However, given the rapidly changing situation, adopting a cautious stance is appropriate.

Seung-min Yoo, Samsung Securities Researcher: "Ukraine crisis' impact on financial markets is short-term and limited"

The biggest concern in the financial market currently is that geopolitical uncertainty has emerged amid rising inflationary pressures.

Energy prices may continue to face upward pressure for the time being. One-third of the 40% of natural gas supplied from Russia to Europe passes through Ukraine's pipelines. With natural gas inventories in Europe not high, this could stimulate energy price increases. There are also concerns about agflation due to rising prices of some agricultural products. Ukraine accounts for 12% of global wheat exports and 16% of corn exports.

However, the impact of the Ukraine crisis on financial markets is expected to be short-term and very limited. This means that the usual pattern observed during geopolitical crises?'financial market shock → policy response → sharp rebound in risk assets'?is unlikely to occur.

Above all, Russia intends to lead the initial situation with a quiet war, so the possibility of full-scale war is low. The financial market has already priced in war concerns, so market reactions will vary depending on whether the conflict escalates into full-scale war.

Moreover, central banks worldwide are shifting to tightening policies to combat inflation, so there is little room for fiscal policy activation in response to the crisis. If geopolitical risks from Ukraine expand, the existing tightening stance may ease somewhat, but immediate changes in monetary policy are unlikely. Considering these points, the market should focus on the inflation impact as the situation develops. Although economic resilience to external shocks has somewhat weakened due to slowing growth, if inflation and its ripple effects remain manageable, the global economy is expected to overcome geopolitical risks.

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