Here’s why South Korea’s KOSPI Index is rising and what next

The KOSPI Composite Index jumped by over 1.7% on Wednesday as global stocks continued their recovery amid optimism that the Iran war will end soon. It jumped to KRW 5,653, up modestly from the weekend low of KRW 5,400. Will these gains continue?

South Korean stocks jump amid war optimism

The KOSPI Composite Index, which tracks the biggest companies in South Korea, jumped as investors reacted to Donald Trump's statement on the ongoing Iran war.

Trump started to talk about this war on Monday, when he noted that the US and Iran had talked. As a result, he delayed his decision to bomb the country’s power plants after Iran threatened to bomb the energy infrastructure of other countries.

Iran rejected these claims. In a separate statement on Tuesday, he said that talks between the two countries had continued and that Iran had sent the US a gift. 

Trump sent a 15-point proposal that will act as the starting point for the talks. However, Iran will likely reject these proposals because it believes that it has the upper hand during these negotiations.

Iran has made a few demands, including compensation, closure of US bases in the region, lifting of sanctions, and binding security guarantees. The US will likely not accept most of these demands, especially on compensation and closing its bases in the region.

The ongoing developments have pushed crude oil prices lower, with Brent and the West Texas Intermediate (WTI) falling to $95 and $88. Natural gas prices have also dropped in the past few weeks. This is important because South Korea depends mostly on energy prices from the Middle East.

Therefore, the KOSPI Index will likely come under pressure in the coming days as odds of a deal between the US and Iran are still low because Iran believes it has an upper hand.

Iran maintains control of the Strait of Hormuz, is still exporting over 1.5 million barrels of oil per day, and its missiles are penetrating Israel’s defenses. Also, Iran has not yethe Houthit activated Houthi rebels in Yemen, meaning that it has more tools to use to put pressure on the United States.

Most top companies in the KOSPI Composite Index were in the green on Wednesday. Samsung Electronics stock jumped by over 1%, while SK Hynix rose 1.42%. Other large companies like Hyundai Motor, SK Square, Samsung Biologics, Hanwha Aerospace, Doosan Enerbility, and KB Financial Group rose by over 1%.

KOSPI Composite Index technical analysis 

KOSPI chart | Source: TradingView 

The daily chart shows that the KOSPI Index has held steady in the past few days and is a few points below the year-to-date high of KRW 6,320. It has constantly remained above the dynamic support of the 50-day Exponential Moving Average (EMA).

However, oscillators are sending bearish signals, with the two lines of the Percentage Price Oscillator (PPO) continuing the downward trend. Its two lines are now nearing their zero line. Also, the Relative Strength Index (RSI) has continued moving downwards.

Therefore, the index will likely remain in this range as traders wait for the more details on the ongoing talks. The key support and resistance levels to watch will be at KRW 5,330 and KRW and 6,000.