From "Best in the World" to "Worst in the World," Iran War "Knocks Down" the Korean Stock Market

Two major pressures—ongoing Middle East wars and a cooling chip demand outlook—are hitting at the same time, and the Korean stock market, which once led the pack, is now facing a serious test.

Since March, the Korea Composite Stock Price Index has fallen 15%, with the decline ranking among the top in the world’s major markets. Overseas capital has continued to withdraw steadily, with the scale nearing historical records. As of last Friday, the Korean market has seen a total market value erosion of about $493 billion this month.

(The Korea Composite Stock Price Index has already fallen more than 15% in March.)

A surge in oil prices is weighing on the outlook for the Korean economy, which is highly dependent on energy imports. Meanwhile, doubts about whether demand for memory chips related to artificial intelligence can be sustained are starting to spread.

SK hynix and Samsung Electronics together account for nearly 40% of the weight in Korea’s Composite Index. The two stocks have been heavily dumped by foreign investors, making them the core of this round of declines.

(Samsung Electronics and SK hynix shares are down sharply from their yearly highs.)

Energy fuse

Rising oil prices triggered by heightened tensions in the Middle East are the direct fuse that sparked this round of declines in Korean stocks.

Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney, said:

I’m not touching Korean stocks at the moment because I’m facing two major headwinds—war and memory chips—and even a single hard battle is difficult to handle. We’re moving into an even more uncertain situation, and on top of that, there is a certain amount of crowded trading in the market, so the operational risk for the Korean stock market has risen significantly.

Korea’s reliance on crude oil imports from the Middle East is more than 70%, making it highly exposed to oil-price shocks. Authorities have already begun studying measures to expand driving restrictions, reflecting real concerns about rising energy costs.

At the same time, elevated energy prices also increase the risk of inflation rebounding and tighter monetary policy. Marvin Chen, a sector research strategist at Bloomberg, noted:

The market has not yet fully priced in the risk of war. If oil prices remain high, companies’ earnings momentum may weaken further.

The market’s large-scale volatility has further created an unusually difficult trading environment. The Korean stock market’s circuit breaker mechanism triggers a trading halt when the index’s single-day decline reaches 8%, and this month the mechanism has already been activated twice—accounting for one quarter of all circuit breaker events since 2000.

Meanwhile, this year has already seen 10 activations of an “auxiliary mechanism.” The mechanism starts when daily futures price volatility for the Korea Composite Index exceeds 5%. By comparison, in all of 2025 it was activated only three times.

Matthew Haupt believes that the frequent trading pauses indicate the presence of a large amount of “unstable capital” in the market, greatly increasing the difficulty of trading.

Chip demand outlook clouded, some investors stand pat

Meanwhile, doubts about the sustainability of artificial intelligence investment are eroding the market’s optimistic expectations for demand for memory chips.

Google’s recently disclosed TurboQuant technology can significantly improve AI running efficiency, and the market has begun to question the scale of future demand for high-end chips as a result.

According to a Goldman Sachs report, recent foreign capital outflows have been driven primarily by large-scale selling of SK hynix and Samsung Electronics. Currently, the foreign investors’ shareholding ratios in both companies have fallen to the lowest levels since 2022.

Despite the blow, the Korea Composite Index is still up about 25% year to date. The previously strong rally has provided some buffer to the index.

Some investors still hold an optimistic view on the long-term outlook for Korean stocks, citing reasons including steady demand for key memory products such as high-bandwidth memory (HBM), strong growth in chip exports, and continued progress in corporate governance reforms.

But for now, many investors have chosen to wait on the sidelines, pending a clearer picture of how the Middle East conflict will affect the supply chain.

Gerald Gan, chief investment officer at Reed Capital Partners, said:

If the war continues for another one or two months, I might keep waiting—at least until the end of the year or the beginning of next year before I reassess Korean stocks.

He added that for now, he is more inclined to hold cash and increase gold allocations.