Rus-Ukr tension at its peak... What is the impact on the domestic stock market?

As geopolitical tensions surrounding Ukraine escalate, the KOSPI index fell more than 1% in early trading on the 22nd. Dealers are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Kwon Jae-hee] Amid escalating geopolitical tensions surrounding the Ukraine crisis, volatility in the domestic financial market is increasing. While the domestic stock market, already under downward pressure due to anticipated monetary tightening and interest rate hikes, is expected to cool down even faster because of the Ukraine situation, some analysts believe that market participants have already priced in the possibility of armed conflict in Ukraine, so there will be no further impact on the financial market.

On the 22nd, both the KOSPI and KOSDAQ markets in the Korean stock market opened with declines of over 1% due to Ukraine risks. The KOSPI market opened at 2,705.08, down 1.41% (38.72 points) from the previous trading day, and the KOSDAQ market started at 869.08, down 1.72% (15.17 points).

Global stock markets, including the Russian stock market, are also experiencing significant fluctuations. The Russian stock market recorded a double-digit plunge. The RTS index, denominated in dollars on the Moscow Exchange, fell 13.2% compared to the previous trading day, while the MOEX index, denominated in rubles, dropped 10.5%. The MOEX index's decline on this day was the largest since the Crimea crisis in March 2014. The pan-European Euro Stoxx 50 index fell 2.17%. Germany's DAX 30 index dropped 2.07%, and France's CAC 40 index fell 2.04%. The U.S. stock market was closed for Presidents' Day, but S&P 500 futures fell nearly 1.3%, and Nasdaq 100 futures, which are tech-heavy, declined 1.9%.

Although Russia has launched military intervention in the Donbas region of Ukraine, the prevailing market view is that the likelihood of full-scale war is low. Analysts suggest that the financial market has already priced in the risk of war. In particular, as the possibility of Western sanctions against Russia increases, the Russian stock market plunged over 13%, and the Russian ruble weakened more than 3% against the dollar, indicating that market participants have already factored in the possibility of armed conflict in Ukraine, which is expected to weaken risk asset appetite.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "Currently, it is unpredictable how the Ukraine crisis will unfold. However, considering currencies classified as risk assets such as the ruble and euro, it can be interpreted that the Ukraine issue is unlikely to expand further within the financial market itself."

However, the key issue is how much the rising energy and agricultural product prices amid increasing inflationary pressures will further stimulate inflation. One-third of the 40% of natural gas supplied from Russia to Europe passes through Ukrainian pipelines. Additionally, Ukraine accounts for 12% of global wheat exports and 16% of corn exports, raising concerns about agflation due to rising agricultural prices.

Kim Young-ik, a professor at Sogang University Graduate School of Economics, stated, "Our stock market is already under downward pressure due to factors such as monetary tightening and interest rate hikes, and the Ukraine crisis is amplifying uncertainty. The escalating tensions between Russia and Western countries surrounding the Ukraine situation will accelerate the slowdown of our country's economy."

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