KOSPI on Edge over Ukraine and Inflation Concerns, Watch for Widening Decline... "Respond After Uncertainty Clears"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The domestic stock market is expected to continue experiencing volatility due to the Russia-Ukraine war, warranting caution against an expanded decline. Ahead of the March Federal Open Market Committee (FOMC) meeting, concerns are growing that this situation could deepen the global economic slowdown. According to major securities firms, the lowest bottom band for the KOSPI this week is around the 2540 level. The upper band of the expected KOSPI range is forecasted to reach up to the 2790 level.

On the 27th, according to the financial investment industry, NH Investment & Securities projected the KOSPI expected band for this week to be between 2540 and 2700. Hana Financial Investment forecasted a range of 2600 to 2720.

Kim Young-hwan, a researcher at NH Investment & Securities, explained, “There is a high possibility that military tensions will escalate further,” adding, “Since 1980, the average decline of the U.S. Standard & Poor’s (S&P) 500 following geopolitical events has been -3.8%.” He further noted, “This is almost in line with the current KOSPI correction range, but emerging market stock markets are somewhat more vulnerable to geopolitical risks.”

In fact, since the beginning of the year, the domestic stock market has shown a particularly sluggish trend compared to major countries excluding Russia. As global companies’ earnings forecasts have been revised downward and expectations of an economic slowdown have surged, the Ukraine crisis has acted as a catalyst for this possibility. Given Korea’s economic characteristics, which are highly dependent on manufacturing and exports, if this situation worsens, investment attractiveness is bound to decline.

Attention is increasingly needed on the remarks of Federal Reserve (Fed) Chair Jerome Powell and other related officials scheduled consecutively in early March. It is believed that insights into the March FOMC can be gained by observing the Fed’s perspective on growing stagflation concerns (economic stagnation accompanied by rising prices) due to the Ukraine crisis.

Moon Nam-jung, a researcher at Daishin Securities, stated, “Unlike past geopolitical risks that only caused short-term volatility expansion, the Ukraine crisis is unfolding in a new pattern reflecting the surrounding conditions of the stock market this year,” adding, “From an investor’s perspective, it is not too late to respond after confirming that the related uncertainties have been completely resolved.”

Samsung Securities expects the KOSPI in March to fluctuate within the range of 2600 to 2800, showing a neutral to slightly negative price trend. It is anticipated that the Russia risk will temporarily trigger supply-demand and psychological undershooting beyond the lower end of the index forecast depending on related issues. However, unless it leads to a long-term full-scale war and subsequent global economic downturn, the likelihood of continued market psychological overreaction is considered low.

Kim Yong-gu, a researcher at Samsung Securities, explained, “Currently, the market is repeatedly reacting emotionally based solely on news about the Ukraine risk,” adding, “While it may temporarily negatively affect supply-demand or investor sentiment, if it does not spread to feared situations such as a global economic recession, it will be difficult for the index to continue a downward trend.”

He predicted that uncertainties related to the Fed could be resolved after the March FOMC. He believes that investors’ attention, which has been focused on inflation and Fed variables, will shift to actual economic fundamentals and major countries’ willingness to implement policy stimulus. The earnings momentum of domestic companies is also expected to bottom out around March.

Meanwhile, notable events this week include Korea’s export-import index announcement on the 1st, the U.S. Beige Book release on the 2nd, and Europe’s February Consumer Price Index (CPI) announcement. On the 3rd, Fed Chair Jerome Powell will appear at a hearing. On the 4th, the U.S. wage growth rate will be announced.

On the 5th, China’s annual largest political event, the Two Sessions (National People’s Congress and Chinese People’s Political Consultative Conference), will be held.

Kim Dae-jun, a researcher at Korea Investment & Securities, said, “There is a high possibility that China will announce economic stimulus measures around the March Two Sessions,” adding, “Even if large-scale government-led stimulus measures like those after the 2008 financial crisis are not introduced, liquidity-wise, it will ease the private sector’s constraints.”

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