On Friday, all three major U.S. stock indices rose more than 1% after Iran announced that the Strait of Hormuz is now “completely open.” This statement followed news of a 10-day ceasefire agreement between Israel and Lebanon.
The S&P 500 and the Nasdaq Composite once again hit record highs. The S&P 500 recorded its 13th gain in the past 14 trading sessions, while the Nasdaq posted gains for 14 consecutive trading days.
It remains unclear whether this easing of tensions will persist, as the ceasefire is temporary and the U.S. continues to block Iranian vessels from entering or exiting the Strait of Hormuz. Nonetheless, the news of the reopening triggered a sharp drop in oil prices, with Brent crude futures falling 9.8% to $82.21 per barrel. If the situation improves further, oil prices could continue to decline.
It is no surprise that falling oil prices drive stock market gains. Oil prices affect a wide range of industries beyond energy and transportation, including retail, agriculture, and any sector reliant on freight transport, vehicles, or heavy machinery. Oil prices also have macroeconomic implications, which are especially evident in Asian countries such as China, Japan, and South Korea, all of which are highly dependent on the oil and gas resources passing through the Strait of Hormuz.
South Korea imports approximately 60% to 70% of its crude oil through the Strait of Hormuz, and its stock market fell sharply after the outbreak of hostilities. The iShares MSCI South Korea ETF (EWY) dropped more than 20% during the conflict but has since rebounded strongly, hitting a record high on Friday.
The EWY ETF was one of the best-performing ETFs last year, nearly doubling in size thanks to the memory chip boom. The fund’s two largest holdings, Samsung Electronics and SK Hynix, are the world’s two largest producers of memory chips. Before tensions escalated in Iran, the ETF had already risen more than 50% this year. If the Iran conflict moves toward peace, the ETF is expected to rise further, as demand for memory chips is projected to remain strong at least through 2027. Additionally, the South Korean stock market is benefiting from corporate governance policies that are more shareholder-friendly. The ETF currently trades at a price-to-earnings ratio of 20.4 times, still significantly lower than that of the S&P 500.
Notably, South Korea is a major energy importer, with 70% of its oil imports passing through the Strait of Hormuz. The depreciation of the South Korean won has further exacerbated the situation, making it more expensive to purchase this commodity critical to the country’s technology-driven economy.
On “Ceasefire Day,” April 8, the iShares MSCI South Korea ETF surged 8%. The $18.59 billion fund has risen about 25% from its March lows and is now only 3% below its 52-week high. These sharp moves confirm South Korea’s close ties to the situation in Iran.
The EWY ETF, which is about to celebrate its 26th anniversary, tracks the MSCI Korea 25/50 Index and holds 81 constituent stocks. Samsung Electronics and SK Hynix together account for 44.5% of the ETF’s weight, making the fund attractive to investors seeking exposure to a key bottleneck in artificial intelligence—dynamic random-access memory (DRAM). However, semiconductor production is notoriously energy-intensive, which also highlights the fund’s vulnerability in the face of an Iran conflict. Nevertheless, investors remain wary of potential downside risks from energy supply disruptions and inflationary pressures.
