South Korean Stocks Jump as Lower Oil Prices Support Risk Taking

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(Bloomberg) — South Korean equities bounced back, as risk sentiment recovered after President Donald Trump signaled the Iran war may be ending soon.

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The benchmark Kospi closed 5.4% higher, erasing much of the previous day’s 6% loss. Chip heavyweights Samsung Electronics Co. and SK Hynix Inc. jumped more than 8% each. The gains tracked rebounds in US peers as Trump’s comments sent oil prices lower, easing concerns over the impact on inflation.

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After world-beating gains in Korean stocks over the past year due to the artificial intelligence boom, the market has had a bumpier ride than most since the Iran war started. Much of the volatility has been driven by swings in crude, given the nation’s dependence on the Middle East for the bulk of its energy needs. 

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“Today’s rebound is a deep exhale — the worst-case scenario of a prolonged Middle East conflict has been walked back, and markets are pricing that relief with both hands,” said Hebe Chen, senior market analyst at Vantage Global Prime. In Korea, “battered tech trade gets the most immediate oxygen as risk sentiment improves after the recent selloff.”

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Among other asset classes, the won rebounded about 0.4% against the dollar. Government bond futures strengthened, with the 10-year contract rising as much as 120 ticks intraday, its biggest gain since December 2023. The Bank of Korea stepped in to stabilize markets by conducting outright purchases of government bonds in response to heightened volatility in yields.

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Asia’s Cheapest 

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The Iran war-driven flight from risk has made South Korea Asia’s cheapest major equity market. The Kospi now trades at 8.3 times forward earnings, below its five-year average of 10 times. That’s even as estimated earnings per share has doubled since September on a surge in memory-chip prices.

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Many market participants remain optimistic on Korean stocks, with the basic AI premise still intact. Goldman Sachs Group Inc. and UBS Global Wealth Management upgraded their outlooks for the market last week, citing the continued strength in memory. 

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“We doubt that higher energy prices will change the AI infrastructure spending of the US hyperscalers much,” Vis Nayar, chief investment officer at Eastspring Investments, wrote in a note. Korea stands out for its “preeminent position” in the tech value chain, he added. 

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Others see a chance for continued gains in shares that have benefitted from the nation’s campaign to lift corporate value and reform governance. The positive impact of the drive by the government and regulators spreads far beyond the chip industry.

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“We expect Kospi to remain above 5,000 assuming strong policy support and controlled risks,” Joon Seok, Korea equity strategist at Morgan Stanley, wrote in a note. The broker sees “opportunity to return to the reform story post-correction, including financials, holdcos and high-yield stocks.”

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—With assistance from Abhishek Vishnoi and Susie Kang.

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