Middle East situation impacts "this year's hottest stock market": Korean stocks experience the largest single-day decline in 18 months, with Samsung and SK Hynix share prices dropping about 10%

South Korea’s stock market experienced a rapid cooling from being the “world’s strongest” in just one trading day. Driven by factors such as rising oil prices due to the Middle East situation and a decline in global risk appetite, the Kospi index, which had outperformed earlier this year, faced concentrated profit-taking, with heavyweight stocks falling sharply and amplifying the decline.

After a brief closure on Monday for a public holiday and avoiding overseas sell-offs, the Korean stock market opened sharply lower on Tuesday. The Kospi index fell over 7% that day, triggering a circuit breaker, and regulators temporarily halted program trading.

Two major heavyweight stocks became the focus of selling. Samsung and SK Hynix saw their share prices drop by 9.88% and 11.5%, respectively, dragging the market to its largest single-day decline since the volatility caused by the sudden unwinding of yen carry trades in August 2024.

Risk aversion was also reflected in the currency and commodities markets. The Korean won depreciated by 1.34% against the US dollar, with the dollar gaining safe-haven support; meanwhile, oil prices rose after the US and Israel launched strikes on Iran on Saturday, putting direct pressure on South Korea, which heavily relies on Middle Eastern oil, and accelerating market re-pricing of previously overheated conditions.

Profit-taking surged, with gains for the year dropping from 50% to 37%

This sharp decline occurred after the Korean stock market had been operating at high levels. As the best-performing global stock index in 2026, the Kospi had gained up to 50% year-to-date before the end of February. However, after the tumble on Tuesday, the gains narrowed to 37%.

Despite the rapid decline, the long-term returns in the Korean market remain significant, with a 128% increase over the past 12 months. Nonetheless, last week’s trading activity indicated increased retail speculative sentiment, setting the stage for the concentrated sell-off on Tuesday.

Fund flow data shows that overseas investors had already begun reducing their exposure before the decline. According to Korea Exchange data, on the last trading day of February, international investors had a net outflow of 7 trillion won (about $47 billion).

Foreign investors continued to sell on Tuesday. According to Bloomberg and Chosun Biz, they sold another 5.4 trillion won, and the rapid decline in the index reinforced each other, becoming a key driver of the volatility that day.

Oil prices and the won resonated together, re-pricing South Korea’s “Middle East dependence”

The market decline was not solely driven by internal stock factors. The weakening won reflected an overall rise in risk aversion, with emerging market currencies under pressure as funds shifted into safe-haven assets like the US dollar.

Oil prices also had a targeted impact on South Korea. After strikes on Iran by the US and Israel on Saturday, oil prices rose. South Korea is one of the world’s largest oil importers, requiring about 2.7 million barrels daily, with roughly 70% coming from the Middle East.

During the broad market decline, some themes related to geopolitical risks gained popularity in the Korean stock market. Shipping companies like Korea Line and STX Green Logis, defense stocks such as Hanwha Systems and Lig Nex1, and energy-related stocks like Daesung Energy saw their prices strengthen.

This structural divergence indicates that funds did not exit the market entirely but quickly shifted to more geopolitically driven trading strategies amid rising uncertainty.

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