The stock market, which had continued its rising rally since the new government took office, faced an unexpected challenge with the 'Middle East risk.' Tensions rose in the Middle East as Israel launched a surprise attack on Iran's nuclear-related military facilities, and the domestic stock market underwent corrections.
In addition to the unexpected geopolitical risk, signs of the resumption of the tariff war by the United States could also dampen investor sentiment. It remains to be seen how the U.S. administration will negotiate the reciprocal tariffs that have been deferred until early July with its trade partners.
Investor attention is concentrated on whether the domestic stock market can maintain its upward trend despite the anticipated adverse factors. The stock market declined on the 13th due to geopolitical risks, but the extent of the correction was not significant. In particular, foreign investors continued to net purchase domestic stocks on that day. It is interpreted that the new government is committed to policies for revitalizing the stock market, and with the formation of the supplementary budget, there is potential for revitalizing the sluggish economy.
In the last week (June 9-13), the KOSPI index exceeded the 2,920 mark, marking its highest level in over three years. From the 2nd to the 12th, during the first seven trading days of the new government, the index rose consecutively. The increase in the index was led by foreign and institutional investors. In June, foreign net purchases in the securities market were close to 4.5 trillion won. The influx of foreign capital into the KOSDAQ market brought the KOSDAQ index close to the 790 mark.
However, on the 13th, the Israeli Air Force launched operation 'Rising Lion' and targeted dozens of military and nuclear sites in Iran, causing the domestic stock market to turn downward. It is reported that many Iranian military officials and nuclear scientists have died in this strike. Asian stock markets fell sharply, and the U.S. stock market also showed a downward trend.
The airstrikes heightened tensions in the Middle East and pushed up international oil prices. Israeli Prime Minister Benjamin Netanyahu noted, "This operation will continue for several days until the Iranian threat is eliminated," declaring a special state of emergency across Israel. International oil prices surged by around 10%.
It is still uncertain how this airstrike will impact the global economy, but the adjustment in our stock market was relatively minor. It seems that not just individual investors but foreign investors are also anticipating the effects of the government's stock market support policies.
The Democratic Party of Korea announced on the 13th that it will establish the 'KOSPI 5000 Special Committee' as a permanent special committee. Following President Lee Jae-myung's first external schedule after taking office, where he promised to revitalize the stock market at the Korea Exchange, the party intends to support legislation in this regard. The special committee is expected to continue discussions related to the amendments to the Commercial Act that President Lee has been pursuing since his time as party leader.
Since the government stated that it would resolve the chronic 'discount' of our stock market, holding companies and financial sectors have shown strength. While these sectors are expected to benefit from government policies, if the stock prices become too high, taking temporary refuge in global policy stocks such as defense and nuclear power might be a good alternative.
Lee Woong-chan, a researcher at iM Securities, said, "If the additional rise in new government policy stocks becomes strained, global policy stocks such as shipbuilding, defense, and nuclear power will emerge again as alternatives, showing a cycle of rotation." He also noted, "I remain conservative regarding large export stocks," adding that if one wants to invest in large export stocks benefiting from foreign buying, it would be effective to invest in companies with potential for improvements in governance structures, such as Samsung C&T and Hyundai Mobis.
This week, attention should also be paid to the possibility of tariff risks being reinstated. The U.S. Department of Commerce announced that it would add major household appliances such as refrigerators and washing machines to the list of products subject to tariff imposition on steel derivative products. This is an extension of the tariffs related to steel based on the Trade Expansion Act, which differs from reciprocal tariffs that were ruled unconstitutional by the U.S. District Court.
Ryu Jin, an economist at KB Securities, noted, "The U.S. tariff policy has become a constant rather than a variable, and given that inflation concerns have somewhat eased following the inflation report in May, we should remain mindful that we have entered a phase of renewed uncertainty in the short term."
The Federal Reserve’s Federal Open Market Committee (FOMC) meeting will be held on the 17th and 18th of this week. Experts anticipate that interest rates will remain unchanged, but they advise market participants to closely analyze the stance on monetary policy that the Federal Reserve will announce in light of the possibility of a rate cut in September.