[R&E] High Oil Price Pressure Amid Middle East Unrest, Samsung Electronics' Q1 Earnings Overwhelm Market Expectations

[R&E: Research & Epoch] This is News Epoch's signature report that envisions a new era of investment through an integrated analysis of global financial data and domestic securities firm research.

Global Market Brief

The New York stock market closed higher the previous day despite geopolitical risks and rising oil prices. The Dow Jones Industrial Average (NYSE: DJI) rose 0.36% to 46,669.88 points, and the S&P 500 (NYSE: SPX) index gained 0.44% to 6,611.83 points. The tech-heavy NASDAQ (NASDAQ: IXIC) index also showed a solid trend, rising 0.54% to 21,996.34 points. In particular, the Philadelphia Semiconductor Index advanced 1.06%, reflecting expectations for a recovery in the semiconductor industry.

International oil prices rose due to the intensifying Middle East conflict. West Texas Intermediate (WTI) crude oil increased by 0.78% to $112.41, and Brent crude oil climbed 0.68% to $109.77, recording the highest prices since the war began. This is the result of the Middle East conflict heightening geopolitical risks in the Strait of Hormuz, which accounts for about 20% of the world's maritime oil transport. The high oil price trend is expected to act as a major factor fueling global inflationary pressure once again.

U.S. Treasury bond yields showed mixed trends. The 2-year yield rose by 0.8 bp to 3.8478%, but the 10-year yield fell by 1.0 bp to 4.3307%. This reveals the market's dilemma between concerns over an economic slowdown and persistent price pressures. The U.S. ISM Services Index for March came in at 54.0, missing the market consensus of 54.8 and suggesting a slowdown in service sector activity. However, the ISM Services Prices Paid Index recorded 70.7, significantly exceeding the expected 67.0. This proves that the upward trend in service prices remains strong, adding to the uncertainty regarding the Federal Reserve (Fed)'s interest rate cut decisions.

Domestic Market Overview

On the previous trading day, the domestic stock market saw mixed results, with the large-cap-heavy KOSPI rising and the KOSDAQ falling. The KOSPI showed strength, rising 1.36% to 5,450.33 points, while the KOSDAQ dropped 1.54% to 1,047.37 points. This was the result of buying pressure concentrated on domestic large-cap semiconductor stocks, influenced by the strong performance of the Philadelphia Semiconductor Index in the U.S. stock market the day prior.

The global high oil price trend exacerbates concerns over cost burdens across the domestic stock market. In particular, South Korea's energy dependence on the Middle East reaches about 12%, making it highly vulnerable to rising oil prices. The dollar-won exchange rate started at 1,508.5 won, down 2.3 won from the previous trading day, showing some stability; however, global high oil prices and geopolitical instability are factors that can increase exchange rate volatility. Overall, amid macroeconomic uncertainty, individual corporate earnings and growth momentum are driving market trends.

Key Industry Issues and Insights

Semiconductors: Overwhelming Earnings Driven by AI Demand

The semiconductor industry demonstrated robust earnings backed by a global industry recovery and AI demand. Samsung Electronics (KRX: 005930) recorded a preliminary operating profit of 57.2 trillion won for the first quarter, significantly exceeding the market expectation of about 38 trillion won and the upper end of forecasts, achieving an earnings surprise. On the previous trading day, Samsung Electronics' stock price rose by 3.7%, and SK hynix (KRX: 000660) also went up by 3%. In the U.S. stock market, Micron Technology (NASDAQ: MU) increased by 3.15%, supporting the strength of the semiconductor sector. This is the result of increased sales of high-value-added products such as HBM and the stabilization of memory semiconductor prices acting as key drivers for earnings improvement. The earnings rebound of domestic semiconductor companies suggests that their leadership in the global AI semiconductor market is being further strengthened.

Construction & Defense: Middle East Reconstruction and the Power of Order Backlogs

Middle East reconstruction projects are estimated to have total construction costs of about $150 billion, and actual reconstruction costs are expected to be around $30 billion to $50 billion over 3 to 5 years. However, full-scale orders are expected to begin in the second half of 2027, making a long-term approach essential. Samsung E&A (KRX: 028050) is highly likely to exceed market expectations with a first-quarter operating profit of 211.5 billion won, up 34.5% year-on-year, and its target stock price has been upgraded to 56,000 won.

In the defense sector, Hyundai Rotem (KRX: 064350) is expected to continue its robust performance, recording a first-quarter operating profit of 215.7 billion won. Securing a defense order backlog of 10.8 trillion won as of the fourth quarter of 2025, which provides about 3.3 years' worth of work, proves a stable foundation for growth. Hanwha Aerospace (KRX: 012450) is expanding its defense portfolio by pushing for the acquisition of Poongsan's ammunition division. This shows that domestic defense companies are simultaneously realizing stable growth and business expansion amidst the trend of expanding global defense budgets. On the other hand, Doosan Enerbility (KRX: 034020) is expected to report a first-quarter consolidated operating profit of 143.1 billion won, falling short of market expectations, analyzing that an earnings improvement in the energy transition sector is urgent.

Steel: Easing of Cost Burdens and Profitability Defense

POSCO Holdings (KRX: 005490) is expected to meet market expectations with a first-quarter consolidated operating profit of 588.6 billion won. Operating profit for 2026 is projected at 3.2 trillion won, an increase of 73.1% year-on-year, and the buy investment rating and target stock price of 440,000 won were maintained. As spot iron ore prices maintain stability at the $106 level, cost burdens are easing, and efforts to diversify the product portfolio are leading to improved earnings.

Market Signals

• Samsung Electronics Preliminary 1Q26 Earnings: Recorded an earnings surprise with a preliminary first-quarter operating profit of 57.2 trillion won, significantly exceeding market expectations.

• International Oil Prices at Highest Post-War Levels: WTI recorded $112.41 and Brent crude $109.77, heightening geopolitical crises.

• U.S. ISM Services Prices Paid in March: Recorded 70.7, exceeding market expectations (67.0) and sustaining upward pressure on service prices.

• Hyundai Rotem Defense Order Backlog: Secured 10.8 trillion won, establishing about 3.3 years' worth of stable future work.

• Middle East Reconstruction Scale: Total construction cost estimated at about $150 billion, projecting benefits for the domestic construction and plant industries.

Epoch View: Investment Implications

The global economy is facing complex challenges of high oil prices, geopolitical risks, and inflationary pressures. In particular, the rise in the U.S. ISM Services Prices Paid Index is a key factor increasing the uncertainty of the Federal Reserve (Fed)'s monetary policy. However, even amid this macroeconomic instability, specific industries and companies are demonstrating solid earnings and growth momentum.

Samsung Electronics' overwhelming earnings mean that the positive impact on domestic industries from structural changes—such as the global semiconductor industry recovery and increased AI demand—has materialized. The Middle East reconstruction projects will provide opportunities for construction and plant companies in the long term, highlighting the competitiveness of leading companies like Samsung E&A. In addition, intensifying geopolitical instability is the driving force supporting order expansion and earnings growth for domestic defense companies such as Hyundai Rotem and Hanwha Aerospace.

In conclusion, in an environment of persistent macroeconomic uncertainty, a strategy focusing on companies that agilely respond to structural changes within the industry and possess a differentiated earnings foundation is effective. Despite the constant presence of high oil prices and price pressures, sectors with distinct fundamental improvements are judged to overcome market volatility and achieve excellent performance.

This content was generated through News Epoch's proprietary AI algorithm, which analyzes public data from domestic major securities firm research centers and global financial media in real time. We disclose that it is an objective summary based on collected data and does not constitute a solicitation or recommendation for investment in any specific stock.