[주간증시전망] Ukrainian fears dominate stock market uncertainty grows

The closing price of the KOSPI is displayed on the billboard in the dealing room of Hana Bank’s main branch in Myeong-dong on the 18th.[사진=연합]

The domestic stock market is expected to remain unstable this week due to Ukraine’s geopolitical risks. This is because Russia has announced that it will withdraw its troops stationed on the border with Ukraine, but the western camp, led by the United States, still does not trust it and the war is not going away. Although the United States often seeks to resolve the issue through diplomatic methods, there are reports of concerns over the possibility of war, so uncertainty in the market is highly likely to persist for the time being. In addition, concerns about US tightening are also weighing on the market. Despite such concerns, experts advised interest in stocks related to re-opening and IT hardware, automobiles, chemicals, and steel industries that are expected to benefit from re-opening-related stocks as stocks that benefit from economic recovery are highly likely to rise.

On the 18th, the KOSPI index closed at 2744.52, up 0.43 points (0.02%) from the previous trading day. On a weekly basis (February 14-18), it fell 0.11% (3.19 points). Concerns over Russia’s invasion of Ukraine shook the market. However, in the case of last Friday, the Korean stock market showed strong gains as the possibility of a ministerial level dialogue between the US and Russia emerged. Individuals net sold 1.282.9 trillion won, while foreigners and institutions net bought 304.6 billion won and 894.4 billion won, respectively.

Ukraine’s geopolitical risks remain variable

The Korean stock market is expected to show volatility due to concerns over Russia’s invasion of Ukraine. Kim Young-hwan, a researcher at NH Investment & Securities, cited the continued risk of Ukraine and uncertainty in oil prices as factors for the decline in the domestic stock market.

Russia announced the withdrawal of its troops from the Ukraine border, but NATO members, including the United States, do not trust it. Russia’s war effort, which is an oil producing country, is directly linked to an increase in the price of raw materials such as global oil prices. West Texas Intermediate (WTI) for March ended at $91.07 at the New York Mercantile Exchange (NYMEX) on the 18th (local time) despite positive expectations for sanctions easing on Iran. It is the first time in more than eight years since October 2014 that the international oil price exceeded $90.

Ukraine’s geopolitical concerns are likely to continue this week. According to foreign media such as the AP, on the 19th, Denis Pushlin, the head of the pro-Russian Donetsk People’s Republic (DPR), a pro-Russian force that controls Donetsk province in eastern Ukraine, has issued an order to mobilize the army. The recent clashes between pro-Russian separatists and Ukrainian government forces in Donetsk and Lugansk are growing fears that Russia could use this as an excuse to invade Ukraine. In addition, the British Guardian reports that Russia has begun preparations for war within its own country, such as opening its borders to prepare for the influx of refugees, raising concerns about war.

Seo Jeong-hoon, a researcher at Samsung Securities, said, “If the conflict between Russia and Western countries leads to a physical conflict, the impact of the real economy will be similar to that of the pandemic. It is highly probable and the supply bottleneck is likely to intensify as logistics and other factors stagnate.”

On the other hand, there are opinions that the possibility of war is low. Park So-yeon, a researcher at Shinyoung Securities, said, “It is close to impossible to predict geopolitical risks, but the Dutch TTF (European Natural Gas Price Index) is still on the decline, and the Ukrainian Hryuña (UAH) exchange rate is unchanged. “It seems that the current risk of war is not as great as it was during the 2014 civil war between the Ukrainian government forces and pro-Russian rebels,” he said.

He continued, “In addition, the premium of Ukraine’s one-year CDS (credit default swap) rose to 13,000 bp in 2015, but is now at the level of 1000 bp. Meaning, it was a very immediate situation at the time, but not now.”

Reverse Idea Investment: Re-opening and earnings improvement stocks

The financial investment industry advises that a strategy to take advantage of volatility is necessary as war fortunes over Ukraine intensify. The re-opening is currently in progress and is expected to accelerate further in the future. In addition, as the economy is also expected to improve, we need to pay attention to stocks that have suffered large declines and are showing earnings improvement.

Kim Young-hwan, a researcher at the U.S., said, “Even though the Ukraine risk will persist in the short term, the Fed tightening risk is expected to be somewhat reduced.”

Seo Jeong-hoon, a researcher at Samsung Securities, said, “The major quarantine authorities are adjusting the level of control, so it will be a driving force to raise the utilization rate in all industries, which has been lacking. will appear,” he said.

He continued, “This is expected to benefit from stocks related to offline consumption such as clothing, cosmetics, food and beverage, and distribution. It is also necessary to pay attention to the materials industry such as steel and metal,” he added.