Unending 'Gongpyo' Fear in the Stock Market

War Sparks vs. Negotiation Hopes
Limited Impact of Conflict
Economic Recession if Full-Scale War Occurs

On the 22nd, the KOSPI and KOSDAQ indices closed lower due to concerns over armed conflict between Russia and Ukraine. Related news is being displayed on the monitor in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Hwang Junho] Despite the new Cold War dynamics between Russia and the United States, the domestic stock market started on an upward trend. Although the spark of war has spread, expectations for negotiations between the US and Russia have also expanded, leading to a cautious market sentiment.

As of 9:55 AM on the 23rd, the KOSPI recorded 2717.43, up 0.39% from the previous session. It started with a 0.76% rise but the gains narrowed. Foreign investors sold a net 346.6 billion KRW, increasing downward pressure.

Still, the early session gains were relatively strong compared to the continuous decline in the US stock market and the more than 13% drop in the Russian stock market on the 21st. Experts analyze that this is because, since last year, the stock market valuation has decreased due to concerns over early tightening in the US, making the impact of geopolitical issues less significant. Choi Yujun, a researcher at Shinhan Financial Investment, said, "The KOSPI experienced a 17.5% (574 points) correction since its peak in August last year," adding, "The supply and demand effects from the listings of KakaoBank, Krafton, and LG Energy Solution also had an impact."

Although the conflict between Russia and Ukraine has intensified, their influence on the global economy remains limited. Russia and Ukraine account for only 1.7% and 0.2% of the world's GDP, respectively.

Positive outlooks have also been raised. Han Jiyoung, a researcher at Kiwoom Securities, stated, "Since this is a geopolitical event among commodity-exporting countries, there are concerns that rising prices of crude oil, grains, and other commodities will worsen global inflation and negatively affect corporate earnings. However, unless a situation beyond armed conflict occurs, the possibility of further inflation worsening and accelerated tightening is low." Kim Sanghoon, a researcher at KB Securities, forecasted, "If international oil prices do not exceed $120 per barrel in the first half or an annual average of $100 per barrel, the prospects for price stabilization and economic recovery in the second half remain valid."

On the 22nd, the KOSPI and KOSDAQ indices closed lower amid concerns over armed conflict between Russia and Ukraine. Dealers are working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

Calls for caution are also significant. Russia's sudden approval of the separatist independence of the Donbas region in eastern Ukraine, controlled by pro-Russian forces, followed by the entry of Russian troops under the pretext of maintaining peace, and the US responding with economic sanctions have created a tense, volatile situation that has frozen investor sentiment.

In fact, KOSPI trading volume fell to levels seen during the COVID-19 outbreak. On the 21st, 7.897 trillion KRW was traded, marking the lowest level since March 4, 2020, when COVID-19 shocked the stock market. Investor deposits, which indicate funds waiting to be invested in the market, also decreased by about 3.5426 trillion KRW to 62.4731 trillion KRW compared to the February average of 66.0157 trillion KRW.

If a full-scale war breaks out, concerns about stagflation are also being raised. Jang Hyuncheol, a researcher at Korea Investment & Securities, said, "The problem is that the issue of raw material supply disruptions is added amid strong inflationary pressures," adding, "At this point, the impact on the financial market could be comparable to the US-China trade dispute." He further analyzed, "As raw material prices rise and inflationary pressures intensify, tightening policies will strengthen, and the possibility of economic recession (stagflation) may arise. Preference for safe assets over risky assets like stocks will increase."

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