Amid Trump-driven global geopolitical uncertainty, the KOSPI index and the won are moving in opposite directions. Strength in shipbuilding and defense stocks has kept the KOSPI on an ‘all-time high’ rally, while risk aversion has boosted the dollar, sending the won-dollar exchange rate higher for seven consecutive sessions. Analysts warn that if the currency continues to rise, it could put the brakes on the KOSPI uptrend, suggesting the geopolitical crisis could become a headwind for the domestic financial market.

On the 9th in the Seoul foreign exchange market, the won-dollar exchange rate ended weekly trading at 1,457.6 KRW per dollar, up 7 KRW from the previous session. It has risen for seven consecutive sessions since the 30th of last month, gaining a total of 18.6 KRW over that period. In after-hours trading that day, it climbed as high as 1,461.7 KRW, marking the highest level since the 24th of last month (1,484.9 KRW).

Despite the rise in the exchange rate and weakness in semiconductors, the KOSPI closed at 4,586.32 the same day, setting a new all-time closing high for the sixth trading day since the market opened in the New Year. The gains were led by large shipbuilding and defense names such as HD Hyundai Heavy Industries (4.64%) and Hanwha Aerospace (11.38%).

The parallel rise in the KOSPI and the exchange rate is underpinned by a ‘geopolitical crisis’.

Shipbuilding stocks that construct warships and defense stocks are highly sensitive to global developments. In November last year, when a ‘peace agreement’ aimed at ending the Ukraine-Russia war was floated, shipbuilding and defense names plunged 10~20%, posting some of the worst returns among major KOSPI constituents.

However, as U.S. President Donald Trump, who has embarked on an invasion of Venezuela, underscores the ‘logic of power’, even leaving open the possibility of the use of force in Greenland, shipbuilding and defense stocks are rallying again. This month, defense names such as Korea Aerospace Industries (30.94%) and Hanwha Aerospace (29.01%), along with the three major shipbuilders (HD Hyundai Heavy Industries, Hanwha Ocean, Samsung Heavy Industries), have surged 18~19%.

The United States has also been proactive in defense investment, recently increasing its defense budget by 50%, from $1 trillion to $1.5 trillion, and announcing a ban on dividend payments and share buybacks by U.S. defense firms, which is further supporting shipbuilding and defense stocks.

By contrast, heightened demand for safe assets amid geopolitical tensions is strengthening the dollar and pushing the exchange rate higher. The ‘Bloomberg Dollar Index’, which compares the value of the dollar against 10 major currencies including the won, rose 0.6% last week, the biggest gain since November last year. This points to intensifying strong-dollar pressure.

Amid geopolitical uncertainty, and with a ruling due this month on the legality of reciprocal tariffs under the Trump administration, there are concerns that exchange-rate volatility could increase. Lee Min-Hyeok, a researcher at KB Kookmin Bank, said, “As the won is a representative risk currency that responds sensitively to external variables, one should be mindful of the risk that its volatility could expand if geopolitical conflicts intensify.”

Jung Yong-Taek, a researcher at IBK Investment & Securities, said, “If the exchange rate returns to the high 1,400 KRW range or exceeds its prior peak during the first quarter, anxiety could intensify compared with December last year, and this could affect perceived economic conditions and the stock market trend.”