With oil prices continuing to rise as the U.S.·Iran war worsens, the KOSPI index plunged to the 5,200 level on the 30th. As the KOSPI has shown a pattern similar to the ‘bubble curve’ that explains the ‘bubble theory’, concern is growing among retail investors. The market judges that this time is different because earnings are supporting it, but projected that if higher oil prices weaken corporate results and even lead to global rate hikes, the advance of the index could be checked.

The KOSPI closed at 5,277.30, down 161.57 points (2.97%) from the previous session. As tensions in the Middle East intensified, May futures for West Texas Intermediate (WTI) and Brent crude each topped $100 and $115 per barrel, weighing on the stock market. In early trading, as fears of ‘stagflation (economic recession·price increases)’ mounted, it even plunged 5.29% from the previous session. The intraday low of 5,151.22 was the lowest since the 9th.

In the KOSPI market, individuals were net buyers of 897.4 billion won, but foreigners were net sellers of 2.1335 trillion won, pulling the index down. Including today, foreigners have been net sellers for eight consecutive sessions.

After being pushed down to the 5,000 level right after the U.S.·Iran war, the KOSPI had climbed to the 5,900 level by the 18th, but as it slipped back into weakness, some investors have begun to question whether the rise in the KOSPI was a bubble, citing the ‘bubble curve (Minsky model)’.

The bubble curve is a model created by Jean-Paul Rodrigue of Hofstra University in the U.S., based on theories of the late economist Hyman Minsky. It explains the process of asset bubbles and collapses based on human ‘psychology’ rather than ‘supply and demand’.

The bubble curve proceeds in four broad stages (stealth phase, awareness phase, mania phase, liquidation phase). First, investors who anticipate a company (or market)'s potential value enter, and institutional investors who recognize the value then enter the market. Next, retail investors who catch the news climb aboard, speculation overheats, and stock prices surge. However, because investors commit without properly grasping value, the bubble bursts at a threshold and prices eventually revert to their long-term average.

Some argue that the KOSPI's trend last year was similar. Having risen since last year, the KOSPI raced from the 4,300 level to the 6,300 level within two months at the start of this year as retail buying poured in. But when war broke out and talk of a semiconductor peak emerged, the index wobbled sharply. The ‘VKOSPI’, known as Korea's fear gauge, also climbed more than 20 points from before the war to the elevated ‘60~70’ range.

In the securities industry, regarding the ‘bubble curve’, there is a view that, unlike in the past, earnings support makes it difficult to see the current uptrend as a bubble. Seo Sang-young, Managing Director at Mirae Asset Securities WM Innovation Division, said, “At the current KOSPI level, the 12-month forward price-to-earnings ratio (PER) is 8~9 times, which is not a bubble and even below a normal price.”

However, if this war pushes up oil prices and leads to global rate hikes, only headwinds will remain for the stock market.

Seo said, “Amid concerns that the Suez Canal could also face problems, WTI topped $100 today; if WTI exceeds $100, corporate profits could fall sharply.”

Kim Yong-gu, a researcher at Yuanta Securities, said, “Unless the situation is resolved in one stroke, domestic and overseas stock markets in April are very likely to repeat ups and downs without a clear direction, depending on changes in the war situation in the Middle East.”