US Nasdaq Soars... Korean Stock Market Smiles Along

Dramatic Rebound Despite Russia's Invasion of Ukraine
US Declares No Participation... Reducing Uncertainty of Prolonged Conflict

[Asia Economy Reporter Hwang Junho] Despite Russia's invasion of Ukraine, the U.S. stock market rebounded, prompting the domestic market to respond positively. However, market attention is focused on whether this sudden rebound will continue.

On the first day after Russia invaded Ukraine, the 25th, the KOSPI opened at 2,678.47, up 29.67 points (1.12%) from the previous session, and the KOSDAQ started at 864.72, rising 1.95%. Forty-seven minutes after the market opened, the KOSPI was up 1.63%, and the KOSDAQ rose 2.83%.

The market, which had shown a decline of over 2% the previous day, appeared to carry over the momentum from the U.S. market, where the Nasdaq surged 3.34% overnight (24th local time) and closed higher. Although Russia launched simultaneous attacks on eastern, northern, and southern Ukraine, U.S. President Joe Biden stated that there would be no military intervention beyond economic sanctions, significantly reducing uncertainty about a prolonged conflict. A prolonged conflict tends to drive inflation, which in turn increases investment sentiment toward safe assets rather than risky assets like stocks.

There are also forecasts that the stock market recovery period due to the invasion's impact will be within two weeks. Lee Jin-woo, a researcher at Meritz Securities, stated, "In the case of the U.S. stock market, when shocks occurred due to geopolitical risks, it took an average of about 18 days (median) for stock prices to recover." However, he analyzed that "the Korean stock market's resilience is somewhat lacking compared to the U.S. In the case of the Crimea crisis, the U.S. recovered in one day, but Korea took about 14 days." The fact that Russian President Vladimir Putin said the purpose of this invasion is not to occupy Ukraine also supports this prediction.

On the 25th, as the US additional sanctions on Russia did not exceed market expectations and geopolitical risks eased, the KOSPI started the session with a 1% rise. Dealers are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

The strong economic indicators despite the conflict also increase the likelihood of the current rebound continuing. The previous day, new U.S. unemployment claims dropped to 232,000, marking a decrease for the first time in two weeks, and weekly crude oil inventories (as of the 18th) increased by 4.514 million barrels to 416.02 million barrels, far exceeding the market expectation of a 300,000-barrel increase. International oil prices (WTI) closed below $100 per barrel ($92.81) due to reduced heating demand thanks to a warm winter. Lee Kyung-min, a researcher at Daishin Securities, noted, "It is important to pay attention to the fact that the U.S. stock market rebounded after the announcement of unemployment claims."

However, it is difficult to say that the risk of prolonged conflict has been extinguished. Inflationary pressures are also increasing. Wheat prices have surpassed $9 per bushel (27.2 kg), reaching the highest level in 10 years. Russia and Ukraine account for 29% of global wheat exports and 19% of corn exports. An Ye-ha, a researcher at Kiwoom Securities, said, "Considering that the U.S. is normalizing monetary policy with inflation in mind rather than economic growth, it is expected to proceed with a 25 basis point rate hike in March as planned, recognizing the sharp rise in commodity prices as a risk."

As some uncertainty about the conflict's trajectory clears, there is also a trend of seeking investment opportunities. CS Wind is currently leading the machinery sector's (3.97%) gains with a 13.46% rise, driven by expectations of increased European demand to reduce Russian natural gas imports and raise the share of renewable energy. The machinery sector is showing the highest gains in the market today. Among domestically listed exchange-traded funds (ETFs), the KINDEX Russia MSCI ETF, which is the only one investing in the Russian stock market, attracted 12 billion KRW in funds today, three times the 4 billion KRW from the previous day. On the 18th, the trading volume was only 59 million KRW. The inflow of funds is analyzed as an attempt to capitalize on a rebound after the Russian stock market (RTS) fell 39.44% the previous day.

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