If the Ukraine War Prolongs, It Could Negatively Impact the Domestic Stock Market's Upward Trend

Russia accounts for 11% of global crude oil exports
If the Ukraine invasion prolongs, international oil prices rise
Inflation negatively impacts the domestic stock market's upward trend

[Asia Economy Reporter Hwang Yoon-joo] An analysis suggests that if inflationary pressures do not ease, a sustained rise in the domestic stock market may be difficult. It is explained that attention should be paid to sanctions against Russia and trends in commodity prices, as the prolonged war between Russia and Ukraine could continue to drive up prices of raw materials such as international oil prices.

Na Jung-hwan, a researcher at Cape Investment & Securities, stated, "At the beginning of February, the 2022 KOSPI operating profit forecast was 257 trillion won, but the profit forecast has been revised downward to 247 trillion won," adding, "There is a possibility that the profit forecast could be further lowered due to margin squeezes caused by rising raw material prices."

Generally, rising international oil prices affect overall inflation. Since the end of last year, concerns about inflation have been raised due to the increase in international oil prices. Amid this, Russia's invasion of Ukraine has made the upward trend in international oil prices appear significant.

According to Petronet, on the 4th, Brent crude and West Texas Intermediate (WTI) crude oil reached $118.11 and $115.68 per barrel, respectively, marking the highest prices so far this year. This represents increases of 49.5% and 52.0% compared to the beginning of the year. Dubai crude, which South Korea mainly imports, also rose 41.5% to $108.84 per barrel.

Researcher Na points to "sanctions against Russia" as an important variable because they could cause raw material prices to rise. If the U.S. imposes financial sanctions as well as export restrictions on strategic goods and key industries, the possibility of international oil prices surpassing $150 per barrel is expected to increase. Russia is the world's second-largest oil exporter, accounting for 11% of global oil exports. Additionally, Russia supplies 40% of the natural gas imported by Europe. If oil export sanctions are imposed, the rise in international oil prices could become more severe. As a result, rising raw material prices negatively impact companies' net profits.

Researcher Na explained, "As military clashes between Russia and Ukraine continue and peace talks face difficulties, the U.S. stock market has shown a downward trend," adding, "The prolonged Ukraine crisis and ongoing sanctions against Russia have contributed to inflationary pressures through rising raw material prices, which acted as a downward factor for the U.S. stock market."

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