[Good Morning Market] Escalating US-Iran Tensions... KOSPI Expected to Open Lower

On July 24, the KOSPI is expected to open lower due to increased geopolitical uncertainties between the United States and Iran.

The previous day on the New York Stock Exchange, the Dow Jones Industrial Average closed at 51,711.65, down 506.93 points (0.97%) from the previous session. The S&P 500 Index ended at 7,408.30, down 90.66 points (1.21%), while the tech-heavy Nasdaq Composite ended at 25,137.69, down 553.21 points (2.15%).

The declines in the New York market were driven by heightened concerns over disruptions in oil supply, as risks rose simultaneously at the Strait of Hormuz and Bab-el-Mandeb Strait. In addition, U.S. President Donald Trump referenced the possibility of large-scale military action, further contributing to geopolitical tensions.

However, with mediating countries continuing with ceasefire negotiations, and considering that further increases in oil prices and interest rates would pose a political burden for President Trump ahead of the November midterm elections, some analysts suggest that the likelihood of a return to the negotiating table should be given more weight than the expansion of conflict in future scenarios.

The U.S. Section 301 forced labor tariffs, announced after the market closed, are expected to have a limited impact on the Korean stock market. Although Korea is subject to a tariff rate of 12.5%, Most Favored Nation (MFN) tariffs apply, meaning that the actual increase in burden compared to the previous 10% provisional tariffs is not significant. Also, the details of these tariffs have been known in the market since June, and they do not overlap with items subject to Section 232 of the Trade Expansion Act, such as semiconductors, steel, and automobiles—factors which also help reduce concerns.

The domestic stock market is likely to start weak due to the declines in the New York market and the expansion of geopolitical uncertainties. However, continued investment in artificial intelligence (AI) by large global information technology companies is likely to provide support. Additionally, after the close, Intel's stock price rose more than 4% in after-hours trading, as the company's earnings and sales guidance exceeded market expectations. This is expected to support the share prices of semiconductor companies and limit further downside.

Although a surge in oil prices and consequent interest rate increases could pressure stock market valuations, the situation is viewed as different from past cycles. When the 10-year U.S. Treasury yield reached 4.79% in January last year, the KOSPI's forward price-to-earnings ratio (PER) stood at 8.6 times. In May of this year, when the yield was 4.67%, the forward PER was 7.3 times. By comparison, the KOSPI's current forward PER is only 6.1 times, and the earnings yield gap has widened to about 10 percentage points, suggesting that the impact of rising interest rates on stock prices may be more limited than in the past.

Jiyoung Han, a researcher at Kiwoom Securities, noted, "As we enter the full-fledged second-quarter earnings season, attention should focus on sectors showing clear earnings improvement. With Alphabet's increased capital expenditure alleviating concerns over memory chip demand, it remains a valid strategy to maintain semiconductor allocations."

She added, "While next week's Federal Open Market Committee (FOMC) meeting in the United States remains a variable, upcoming earnings announcements by Microsoft, Meta, and SK hynix could serve as additional catalysts for a further stock market rally."

This content was produced with the assistance of AI translation services.