Mideast tensions test Kospi rally
Rising global volatility triggered by escalating military tensions in the Middle East poses fresh risks for Korea's export-reliant economy, already under strain from growing trade protectionism and US tariff hikes.
In May, Korean exports declined for the first time in four months, signaling that global trade friction is beginning to weigh on the economy.
'A prolonged surge in oil prices could further jeopardize growth, which is already projected to fall below 1 percent this year,' said Jung Kyu-chul, head of economic forecasting at the Korea Development Institute.
'Higher oil prices will squeeze manufacturers by raising import and production costs, delivering a direct blow not just to industry, but to domestic demand and the broader economy.'
The benchmark Kospi, which had been leading G20 equity markets, snapped its rally on Friday as investor sentiment was rattled by Israel's airstrikes on Iran, sparking fears of a wider regional conflict. The Kospi dropped 0.87 percent after touching a three-year high of 2,920 on Thursday. From May 12 to June 14, the index surged 11 percent—from 2,607.3 to 2,894.6 — outpacing Indonesia's 4.88 percent gain and Canada's 4.24 percent rise.
The rally had been fueled by renewed optimism following the June 4 inauguration of President Lee Jae-myung, which ended a six-month political stalemate and triggered a return of foreign capital after 10 straight months of net outflows.
But Friday's geopolitical shock reverberated across markets. Brent crude jumped more than 10 percent intraday — its largest spike since 2022 — before settling up 7 percent. West Texas Intermediate rose 7.62 percent, stoking fears of supply disruptions.
Safe-haven demand surged. Gold climbed 1.6 percent to $3,457 an ounce in New York, while Korean gold prices rose 2.34 percent to 150,530 won per gram, breaching the 150,000-won mark for the first time since early May.
The Korean won weakened, touching an intraday low of 1,371 against the US dollar before closing at 1,369.6.
Despite the volatility, analysts say the local market should weather the storm unless the conflict intensifies.
'As long as the Israel-Iran conflict doesn't evolve into a full-scale war, the impact on local markets is likely to remain limited,' said Shin Seung-hwan, analyst at Samsung Securities. 'Given the recent steep rally, the tensions could prompt a short-term correction, but any pullback is expected to remain modest.'
Still, with no signs of de-escalation, caution is warranted. 'We need to stay alert to deepening geopolitical tensions,' said Lee Jae-won of Shinhan Securities. 'If oil and other commodity prices continue to climb, that could fuel inflationary pressure and dampen expectations for rate cuts.'
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Korea Herald
11 hours ago
- Korea Herald
Mideast tensions test Kospi rally
Rising global volatility triggered by escalating military tensions in the Middle East poses fresh risks for Korea's export-reliant economy, already under strain from growing trade protectionism and US tariff hikes. In May, Korean exports declined for the first time in four months, signaling that global trade friction is beginning to weigh on the economy. 'A prolonged surge in oil prices could further jeopardize growth, which is already projected to fall below 1 percent this year,' said Jung Kyu-chul, head of economic forecasting at the Korea Development Institute. 'Higher oil prices will squeeze manufacturers by raising import and production costs, delivering a direct blow not just to industry, but to domestic demand and the broader economy.' The benchmark Kospi, which had been leading G20 equity markets, snapped its rally on Friday as investor sentiment was rattled by Israel's airstrikes on Iran, sparking fears of a wider regional conflict. The Kospi dropped 0.87 percent after touching a three-year high of 2,920 on Thursday. From May 12 to June 14, the index surged 11 percent—from 2,607.3 to 2,894.6 — outpacing Indonesia's 4.88 percent gain and Canada's 4.24 percent rise. The rally had been fueled by renewed optimism following the June 4 inauguration of President Lee Jae-myung, which ended a six-month political stalemate and triggered a return of foreign capital after 10 straight months of net outflows. But Friday's geopolitical shock reverberated across markets. Brent crude jumped more than 10 percent intraday — its largest spike since 2022 — before settling up 7 percent. West Texas Intermediate rose 7.62 percent, stoking fears of supply disruptions. Safe-haven demand surged. Gold climbed 1.6 percent to $3,457 an ounce in New York, while Korean gold prices rose 2.34 percent to 150,530 won per gram, breaching the 150,000-won mark for the first time since early May. The Korean won weakened, touching an intraday low of 1,371 against the US dollar before closing at 1,369.6. Despite the volatility, analysts say the local market should weather the storm unless the conflict intensifies. 'As long as the Israel-Iran conflict doesn't evolve into a full-scale war, the impact on local markets is likely to remain limited,' said Shin Seung-hwan, analyst at Samsung Securities. 'Given the recent steep rally, the tensions could prompt a short-term correction, but any pullback is expected to remain modest.' Still, with no signs of de-escalation, caution is warranted. 'We need to stay alert to deepening geopolitical tensions,' said Lee Jae-won of Shinhan Securities. 'If oil and other commodity prices continue to climb, that could fuel inflationary pressure and dampen expectations for rate cuts.'
Korea Herald
11 hours ago
- Korea Herald
Hopes rise for revival of inter-Korean projects
With the new liberal administration in power in South Korea, a sense of hope is brewing among businesses for the revival of suspended inter-Korean economic projects. The anticipation is prominent among several South Korean businesses that were forced to leave the inter-Korean Kaesong Industrial Complex nearly a decade ago. They now share a hope of returning to the shuttered joint economic zone in the North's border city to either resume their business or retrieve what they left behind, a CEO of a manufacturing company with a factory in Kaesong told The Korea Herald on Sunday. 'There is definitely anticipation building among those who left their businesses in Kaesong,' said Shin Han-yong, former chairman of the Kaesong Industrial Complex Business Association and CEO of Shinhan Trading, a fishing-gear company. 'We have been given a false sense of hope multiple times throughout the past decade — I sincerely hope this time, we will be able to continue our business or be able to retrieve what was left behind (in Kaesong),' he added. Shin's hope is based on Lee's latest pledges to swiftly restore suspended dialogue channels with the North as part of his goal to alleviate the escalating military tension between the two Koreas. The joint economic zone, which opened in 2003, has remained closed since February 2016. Seoul shuttered the complex in response to Pyongyang's fourth nuclear test and long-range rocket launch a month earlier. South Korean factory owners have been banned from returning to the joint complex ever since, and the inter-Korean relations have significantly deteriorated in recent years, with the cross-border dialogue channel now completely cut off. Of the 124 firms that were members of the business association, many suffered significant losses or were forced to shut down after failing to return to the zone in the past nine years, according to Shin. Many held over 80 percent of their means of production in the border city. 'I'm one of the luckier ones,' said Shin, who is currently the head of the Global Business Leader center at Inha University and operates another business. 'We were only able to receive one-third of our investments through government compensations and insurance payouts — it devastated many of us.' In 2016, Shinwon, a clothing manufacturer, announced an impairment loss of 25.7 billion ($18.7 million) a few months after being forced out of Kaesong. It then received a combined 19.3 billion won in compensation from the government and insurance payouts. Echoing Shin's sentiment, Kim Ki-moon, chair of the Korea Federation of Small and Medium Enterprises, said that 'several SMEs that had operated in Kaesong Industrial Complex have expressed hope that the inter-Korean economic cooperation would thrive again,' during a meeting between Lee and Korean business leaders on Friday. Kim was the chairman of Romanson, a local watch manufacturer, which has an abandoned factory in Kaesong. 'As one of the first businessmen who entered (Kaesong), I want things to work out,' he added. Inter-Korean business-related stocks surged after Lee ordered the suspension of loudspeaker broadcasts towards the North on Wednesday. The North, in response, halted its propaganda broadcasts near the border on Thursday. According to the Korea Exchange, shares of Hyundai Elevator, the largest shareholder of Hyundai Asan, which owns the rights to the Mount Kumkang tours, inched up 7.25 percent from the previous trading to 84,300 on Thursday. They fell 2.97 percent to 81,800 on Friday. Shares of Ananti jumped 26.7 percent to 9,870 won on Thursday from the previous session and closed higher at 10,600 won on Friday. The local luxury resort developer built a golf course and a hotel in the Mount Kumkang area in the 2000s. The South's tours to the Mount Kumkang area were halted in 2008, following an incident in which a North Korean soldier fatally shot a South Korean tourist. But observers pointed to signs of the North dismantling South Korea-built facilities in both the Kaesong complex and the Mount Kumgang area, and highlighted that the hurdles could be too high to revive certain suspended projects. Inter-Korean ties have historically experienced periods of thaw under the South's liberal governments following the 1950-53 Korean War, which resulted in the division of the country. A period of warming was highlighted globally, especially during the "sunshine policy" era under late liberal President Kim Dae-jung in the late '90s.
Korea Herald
12 hours ago
- Korea Herald
Change in government leaves foreign domestic worker program in limbo
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