[Good Morning Stock Market] Nasdaq Soars Amid Ukraine Invasion... Will KOSPI Reverse to Rise?

Nasdaq Rises 3.34% on Tech Stock Surge
Expecting Buyback Inflow Centered on Large Cap Kospi Stocks

Short-Term, Localized Conflict Scenario Puts Kospi Bottom at 2600
Energy and Commodity Prices Rise if Ukraine Crisis Prolongs
Concerns Over Fed Hawkishness Strengthening Amid High Inflation Response

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Despite Russia launching comprehensive military actions against Ukraine, the US Nasdaq index rebounded sharply by over 3%. This reflects market expectations that Western sanctions are not as severe as anticipated and that the war could end quickly.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Rebound buying expected mainly in large-cap stocks”

The US stock market initially plunged about 3% due to concerns over Russia’s invasion of Ukraine but narrowed losses or turned positive as the possibility of a prolonged war weakened. Amid the announcement of Western countries’ sanctions, the Nasdaq index rebounded by over 3% as the sanctions were seen as less severe than expected. On the day, the Dow Jones rose 0.28%, and the S&P 500 increased by 1.5%.

The narrowing of losses or the Nasdaq’s rise despite the announcement of Western sanctions is positive for the domestic stock market. In particular, the rapid movement of Russia and the growing expectation that the Ukraine issue could end sooner than expected have boosted optimism. Accordingly, the domestic stock market is expected to see rebound buying mainly in large-cap stocks, including major technology stocks that had experienced significant declines.

However, it is expected to take more time for foreign demand to recover. The current situation has increased concerns about a global economic slowdown, and the President of the Cleveland Federal Reserve Bank, Loretta Mester, mentioned that geopolitical events are posing downside risks to short-term growth and upward pressure on inflation, adding to the burden.

Yonggu Kim, Researcher at Samsung Securities: “In the short term, under a localized conflict scenario, the market bottom is around 2600 points”

Unless the armed conflict between Ukraine and Russia escalates into a prolonged, full-scale war, the impact of this situation is expected to affect sentiment more than fundamentals. Unless a recession occurs in the short term or the Nasdaq index suffers a major shock, the possibility of a global stock market trend shift from a bull to a bear market is limited. Currently, the Nasdaq index has already priced in a stock adjustment approaching the level just before systemic risk realization, having passed through cyclical crisis onset since the beginning of the year.

From a domestic economic perspective, it is predicted that a short-term end to the war will not cause significant repercussions. This is because exports to Russia account for 1.5%, imports 2.8% (raw materials), and trade with Ukraine is about 0.1% (grains), indicating minimal direct exposure. Furthermore, the Korean stock market has already priced in market panic from rapid shifts in Federal Reserve policy consensus, the LG Energy Solution black hole effect, and geopolitical tensions with Russia.

Under a short-term, localized conflict scenario, the maximum market impact on the KOSPI is expected not to exceed the 2600 level. The true bottom for the KOSPI is at the PBR 1.0 level, which is 2632 points. The 1.1 PBR level at 2895 points represents the initial rebound phase, and the 1.2 PBR level at 3185 points corresponds to the upper range of the annual outlook.

However, if the conflict escalates into a prolonged, full-scale war, the 2500 level is predicted to act as the first downside support. This is based on the 60-day moving average of the KOSPI during past macro cyclical crises such as the 2012 Eurozone debt crisis, 2013 Bernanke shock, 2014 Russia crisis, and 2018 G2 risk, which represented extreme undershooting in the domestic stock market. Furthermore, if this situation triggers a disruptive change in the global economy, a retreat to the 2300 level, comparable to the 2008 US financial crisis, is anticipated.

The Ukraine crisis is expected to act as a catalyst for stock market declines by raising energy prices and inflation concerns.

Sanctions by Western countries, including the US, are economic sanctions aimed at pressuring Russia in a standoff. If Russia responds by limiting oil and gas exports, energy prices will rise, increasing downward pressure on the global economy. Additionally, from the perspective of the Federal Reserve (Fed), which plans a rate hike in March to combat high inflation, prolonged Ukraine conflict and rising energy and commodity prices are likely to prompt a more hawkish response.

The KOSPI is currently facing challenges such as a high stock market level fueled by excessive liquidity this year, supply chain disruptions and labor shortages caused by COVID-19 leading to logistics crises, and rapid price increases. Until uncertainty is resolved, volatile market conditions are expected to persist, so investors are advised that it is not too late to confirm resolution of the situation before taking action.

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