Kosdaq crashes below 800 as Middle East conflict continues

[Photo by Yonhap]

South Korean stocks continue falling as external uncertainties increased following the outbreak of the war between Israel and Palestinian militant group Hamas, with the Kosdaq slipping below the 800-mark for the first time in seven months since March 2023. Securities analysts, however, believe that it is unlikely to become a long-term headwind for the stock market due to the assessment that the conflict still has a lower probability of escalating into a bigger war.

According to the Korea Exchange on Tuesday, the benchmark Kospi closed at 2402.58, down 0.26 percent from the previous trading day. Although the Kospi managed to defend the 2400 level, it gave back all of its early-day gains of 1.64 percent and finished lower than on the previous trading day. The tech-heavy Kosdaq closed at 795.00, shedding 2.62 percent from the previous trading day and dipping below the 800 level for the first time since March 17.

Despite the ongoing conflict, South Korean stocks performed well earlier in the day as the United States Standard & Poor’s 500 index finished 0.63 percent higher. Due to the Korean economy’s high foreign dependency, however, investor sentiment appears to have contracted and headed downward.

Foreign investors, who generally lead the Korean stock market, have particularly continued to sell off. If international oil prices continue to surge, the resulting high inflation may weigh on the current valuation of growth stocks.

They also continued the sell-off and pulled funds out of the local stock market on Tuesday, net selling 208.1 billion won ($154.38 million) worth of shares on the Kospi. Foreign investors have sold a total of 5.20 trillion won on the Kospi since July and most of the top stocks by market cap declined on the day, with the secondary battery sector taking the greatest fall.

Shares of POSCO Holdings Inc. fell 4.09 percent, while those in Ecopro Co. and Ecopro BM Co. also dipped 6.32 percent and 5.31 percent, respectively. The number of stocks that were flat or down on the Kospi was 822, more than twice as high as 404 of stocks that rose. On the Kosdaq, only 315 stocks rose, while 1,299 stocks remained flat or fell.

But securities and financial experts believe that the long-term impact of the conflict in the Middle East on the stock market will be minimal even as it could be unfavorable in the short term.

“During the first through fourth Middle East wars, the S&P 500 tended to stabilize a week after the war,” Kiwoom Securities Co. analyst Han Ji-young said. “With Iran’s direct involvement not so likely and the outlook for crude oil demand not as robust as in the past, the worst-case scenario seems unlikely.”

Meanwhile, the Korean won value stabilized against the dollar. At the Seoul Foreign Exchange Market, the won was trading at 1349.5 won per dollar on Tuesday, up 0.4 won from the previous trading day’s close.

Earlier in the day, President Yoon Suk Yeol chaired a cabinet meeting and instructed the deputy prime minister and relevant ministries to “monitor the economic and financial situation at home and abroad in real time and do their utmost to manage the risk of economic instability.”