Defense, Refinery Stocks Lose Steam Amid KOSPI Rout

Defense and refinery stocks, which had served as safe havens during the Korean market's two-day plunge following U.S. airstrikes on Iran, sharply pared gains or turned negative on Friday.

These so-called "war beneficiary stocks" had attracted heavy buying on heightened geopolitical tensions but failed to escape the panic selling that engulfed the broader market.

As of 2:05 p.m. on Friday, Hanwha Aerospace fell 7.05% on the Korea Exchange. Hanwha Ocean and Korea Aerospace Industries (KAI) plunged 16.47% and 16.45% respectively, underperforming the benchmark index. LIG Nex1, which hit the daily upper limit the previous session, slipped 0.76%. S-Oil, the leading refinery stock, rose 6.23% but trimmed earlier gains.

The mood was starkly different in pre-market trading. As of 8:30 a.m., Hanwha Systems surged 14.79%, Hanwha Aerospace gained 10.96%, LIG Nex1 jumped 21.94%, and S-Oil climbed 19.32%. These stocks ranked third, fourth, fifth, and seventh in pre-market trading volume, drawing overwhelming investor interest. The rally appeared to extend from Thursday, when S-Oil soared 28.45% even as the KOSPI tumbled more than 7%.

The extreme volatility stems from inflation fears triggered by macroeconomic uncertainty. Concerns over a potential blockade of the Strait of Hormuz, a key oil transit route, have persisted despite President Donald Trump's pledge that the U.S. Navy would ensure safe passage. A slight decline in international oil prices also weighed on refinery stocks. Pessimism is spreading that an oil-driven inflation surge could delay the Federal Reserve's rate cuts.

Analysts expect war-related stocks to remain in focus even as the KOSPI faces further correction.

"We expect short-term volatility in domestic defense stocks depending on how the conflict unfolds, but over the medium to long term, expanding order pipelines should drive share prices higher," said Lee Han-gyeol, a researcher at Kiwoom Securities.