Is the war really ending… KOSPI expected to open higher on negotiation optimism [Market Preview]

YM Lee

Summary

It reported that optimism over an end to hostilities between the United States and Iran is coming into focus, and South Korea’s stock market is expected to open higher.
It said that after a panic sell-off pushed the KOSPI and KOSDAQ sharply lower, New York stocks as well as the MSCI Korea ETF and KOSPI overnight futures surged.
Kiwoom Securities said the KOSPI’s 12-month forward P/E has entered valuation bottom territory, making this a zone where the payoff from buying is greater than selling.

Forecast Trend Report by Period

With optimism growing over an end to hostilities between the United States and Iran, South Korean stocks are expected to open higher on the 1st. Expectations are also rising that the market could recoup a significant portion of the previous session’s losses.

The KOSPI fell sharply the day before, weighed down by a steep sell-off in semiconductor shares. On the 31st of last month, the KOSPI closed down 4.26% at 5,052.46, marking its lowest level in two months since Feb. 2 (4,949.67). The KOSDAQ ended down 4.94% at 1,052.39, its lowest in about a month since the 4th (978.44). Concerns even surfaced that both “5,000 on the KOSPI” and “1,000 on the KOSDAQ” could be broken.

Overnight, however, Wall Street rallied strongly as optimism over an end to the war resurfaced. The Dow Jones Industrial Average rose 2.49% from the previous session to close at 46,341.21. The Standard & Poor’s (S&P) 500 gained 2.91% to 6,528.52, while the tech-heavy Nasdaq Composite advanced 3.83% to 21,590.63. It was the biggest one-day gain in about 10 months since May last year. The MSCI Korea ETF surged 5.63%, and the MSCI Emerging Markets ETF climbed 3.73%. KOSPI overnight futures jumped more than 6%.

Expectations that the Iran war could end sooner rather than later were heavily priced in. The Wall Street Journal (WSJ) reported the previous day that U.S. President Donald Trump told aides he was willing to end the Iran war without reopening the Strait of Hormuz. Iranian President Masoud Pezeshkian also said in a phone call with António Costa, president of the European Council, that “we have never sought tensions or war,” adding that “if certain conditions are met, we will have the will needed to end this war,” according to TASS, citing Iran’s presidential office.

The won-dollar exchange rate fell sharply in overnight trading. After finishing regular daytime trading the previous day at 1,530 won, the rate slid to 1,517 won in the overnight regular session, and then in New York’s non-deliverable forward (NDF) market the one-month contract declined further to 1,503.5 won. International oil prices also eased. West Texas Intermediate (WTI) futures for May delivery settled down 1.46% from the prior session at $101.38.

Han Ji-young, a researcher at Kiwoom Securities, said, “After the panic-selling-driven plunge the previous day, the KOSPI’s 12-month forward P/E fell to the mid-7x range, bringing valuations into bottom territory,” adding, “At current levels, the risk-reward favors buying rather than selling, and that should be at the core of the response strategy.”

Reporter Kang Jin-gyu josep@hankyung.com