"Even if the war ends today, it will take two months to restore infrastructure… a 'V-shaped rebound' in equities looks unlikely" [Analysis+]

Brokerage firms: "If the Middle East crisis drags on, global crude could reach $150 a barrel"

Global oil prices are surging amid the war between the United States and Iran, weighing on equities. With signs the conflict could become protracted, brokerages said the market’s room for a sharp near-term rebound may be limited.

According to the Korea Exchange on the 10th, the KOSPI closed the previous session at 5,251.87, down 5.96% from the prior day. Early in the session, KOSPI 200 futures plunged, triggering a sell-sidecar (temporary suspension of program sell orders) for the first time in three trading days since the 4th. At one point in the morning, the index fell more than 8% from the previous close, prompting a circuit breaker (20-minute trading halt).

It was also the first time in three trading days since the 4th that a circuit breaker had been triggered. It is the first time since March 2020, during the COVID-19 pandemic, that circuit breakers have been triggered twice within a month in the main board market.

Deteriorating investor sentiment—following news of weakening U.S. labor-market conditions and signs that Iran-related measures to block the Strait of Hormuz could be prolonged—was seen as a key driver of the sharp drop. Earlier, global oil prices breached the psychologically important $100-a-barrel level, heightening tensions across financial markets.

The KOSPI has been on a roller-coaster ride depending on Middle East geopolitics. After posting its largest-ever point drop and percentage fall on the 4th (698.37 points, 12.06%), the index rebounded just one day later, logging its biggest-ever point gain on the 5th (490.36 points). It then ended the 6th slightly higher, suggesting volatility was easing, but 'panic selling' returned on the day.

The fear gauge also jumped. The VKOSPI, known as Korea’s fear index, surged 14.51% to 71.82 in the previous session, climbing back into the 70s.

In particular, on the 4th—when the KOSPI tumbled more than 10%—the VKOSPI spiked to 80.37, the highest level since the 2008 financial crisis. The all-time VKOSPI high is 89.3, recorded on Oct. 29, 2008.

As surging oil prices stoked risk-off sentiment, the currency market also saw the won weaken. In daytime trading at the Seoul foreign-exchange market, the won-dollar rate rose to 1,495.50, up 19.10 won from the prior close. Based on the daytime close, it marked the highest level since March 12, 2009 (1,496.50), during the global financial crisis. It also topped the previous closing peak of April 9 last year (1,484.10), when the won slid sharply on the shock from U.S. tariff measures.

With the Strait of Hormuz blockage disrupting crude oil and liquefied natural gas (LNG) supply chains, concerns are growing that an energy crunch for companies is unavoidable—another factor holding back equities. Rising production costs for manufacturing facilities and worries about weakening demand sentiment are also dampening risk appetite.

Oh Jae-young, a researcher at KB Securities, said, "Even if the war were to end today, analysis suggests it would take at least two months to fully restore the oil production infrastructure in the Gulf states," adding, "If the U.S.-Iran situation becomes prolonged and damage spreads to multiple energy facilities across the Middle East, we believe the upside for oil prices is open up to $150 a barrel."

Noh Woo-ho, a researcher at Meritz Securities, also said, "Since the armed clash on the 28th of last month and the blockage of the Strait of Hormuz, fear has been spreading over supply instability for crude oil and natural gas," adding, "At this point, we need to keep in mind the possibility that supply-chain disruptions may be prolonged and consider the knock-on effects that supply shortfalls in crude oil, natural gas and petroleum products could bring."

As a result, analysts say the scope for a short-term 'V-shaped rebound' in equities could be limited, as it may take time for uncertainty to be resolved.

Lee Eun-taek, a researcher at KB Securities, said, "In past cases where the market fell sharply as it has now, 'V-shaped rebounds' were rare, and most showed a 'W-shape' with a lower second bottom," adding, "The market is likely to bottom when 'the worst fear' hits."

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com