The global market begins indiscriminate selling

Because global investors are concerned that the geopolitical risks stemming from US and Israeli strikes on Iran will not end anytime soon—potentially causing an economic shock beyond expectations—major markets including the US and Asia-Pacific have dropped sharply since the week began. International gold and silver prices have also experienced significant volatility. Some analysts say that geopolitical conflict has rapidly shifted global risk appetite toward safe-haven assets. As energy prices keep rising, the market is reassessing the global inflation path and the pace of major central banks’ rate cuts, delaying expectations for ample liquidity.

Circuit Breakers

Impacted by the situation in the Middle East, geopolitical risk has surged sharply. On the 4th, South Korea’s stock market suffered an unprecedented plunge. South Korea’s KOSPI index of composite stock prices fell by more than 12% in a single day. Not only did it break below the 5,100-point psychological level, but both the percentage decline and the number of points lost set historical records.

That day, the KOSPI closed at 5,093.54 points, down 698.37 points from the previous trading day, a decline of 12.06%. This was the largest single-day drop since the KOSPI was established. Within only two days, the KOSPI fell cumulatively by 1,150.59 points, with market value evaporating by approximately 574 trillion won, and total market cap dropping to 4,194.9 trillion won. South Korea’s KOSDAQ venture board index was also dealt a heavy blow, plunging 14% in a single day to close at 978.44 points, with the decline also setting a new historical high.

That day, both the KOSPI and South Korea’s KOSDAQ triggered the first-level circuit breaker mechanism because the declines exceeded 8%. Trading was paused for about 20 minutes at one point, but it could not stop the downward trend of the two major indices. On that day, among the 925 stocks in the KOSPI market, 905 fell, accounting for as much as 98%.

Volatility in the FX market was even more pronounced. During the overnight trading session on the 3rd, the won-to-US-dollar exchange rate briefly broke below the 1,500 level, with a low of 1,506 won—marking the first time since 2009 after the global financial crisis. This threshold has strong symbolic meaning in South Korea’s financial markets. 1,500 won means capital is accelerating its withdrawal, meaning imported inflation risk is rising rapidly; it also means South Korea’s economy’s vulnerability to external shocks has once again been exposed.

Why did the Middle East “black swan” have such a clear impact on South Korean market indices? Guo Lei, chief economist at GF Securities, believes there are three reasons: First, South Korea’s economy is dependent on trade. Second, the rebound in the US dollar index brings liquidity effects to emerging markets. Third, relatively speaking, South Korea’s industrial chain is overly concentrated in three major industries—automobiles, shipbuilding, and semiconductors. The semiconductor supply chain transmits the impact of global technology-asset pricing, and that pricing is driven by the logic of “oil prices rising—inflation expectations heating up—liquidity expectations converging.”

As a typical export-oriented economy, the shock facing South Korea is not limited to this. If key routes for energy transportation are disrupted and lead to slower global economic growth, South Korea will face pressure from a decline in external demand. And once energy costs are passed through in sync to residents’ living costs, it will push the overall price level higher, increasing South Korea’s inflation pressure. A Citi Bank analyst said that if oil prices remain above an average of 82 US dollars per barrel, South Korea’s CPI will rise by 0.6 percentage points.

Panic

In addition to South Korea’s stock market, which was most affected, Japan’s Tokyo stock market’s two major indices also fell by more than 4% at one point on the 4th. In the afternoon trading session that day, the Nikkei 225 average price index’s decline once exceeded 2,600 points, and the Tokyo Stock Exchange stock price index’s decline once exceeded 180 points, with declines exceeding 4% at the same time.

On the US market, New York stocks fell sharply in the early session on the 3rd, with the largest declines among the three major indices exceeding 2% each. All eleven sectors of the S&P 500 stock index fell that day. By the close that day, the Dow Jones Industrial Average was down 403.51 points from the previous trading day, closing at 48,501.27 points, a decline of 0.83%; the S&P 500 index fell 64.99 points to 6,816.63 points, a decline of 0.94%; and the Nasdaq Composite index fell 232.17 points to 22,516.69 points, a decline of 1.02%.

The Chicago Board Options Exchange Volatility Index, also known as the “VIX” or the “panic index,” measuring investor panic sentiment and market risk, rose to 28.15 at one point on the 3rd, the highest level since late April 2025. The index closed at 23.57 that day, up 9.93% from the previous day.

Fu Yifu, a contracted research fellow at SuShang Bank, said that from an industry perspective, the market shows a clear divergence. Sectors such as aviation, shipping, and consumption led the decline due to shocks from energy costs and supply chain disruptions. Defensive sectors such as defense strengthened against the trend, reflecting a defensive switch in capital amid uncertainty. This structural divergence indicates that the market’s adjustment is not due to deterioration in fundamentals, but instead to risk repricing and sentiment venting.

Fu Yifu believes that, overall, this round of adjustment is short-term volatility jointly driven by external risk shocks, an internal pullback from high levels, and investors moving to safety and seeking liquidity. The core logic is the re-pricing of global assets caused by geopolitical uncertainty. In the short term, the market will still be dominated by developments in the situation, and volatility may persist. In the medium to long term, the trend will return to the main line of corporate earnings, policy pacing, and the global economic recovery.

In terms of currency, driven by safe-haven demand, the US dollar index rose slightly by 0.31% on March 2 to 98.37. Benjamin Jones, Head of Global Research at Invesco and a Chartered Financial Analyst, said that under normal circumstances, when safe-haven sentiment first appears in the market, the dollar tends to strengthen. However, after the United States launched “Midnight Hammer” against Iran in 2025, the dollar initially strengthened only moderately and then performed poorly over the following days. A similar situation may occur again now, because the dollar’s so-called safe-haven status has recently been called into question. It is expected that the currencies of energy-exporting countries will strengthen, including the Canadian dollar, the Mexican peso, and the Norwegian krone.

Affected by factors including the dollar’s significant strengthening, central banks reducing gold purchases, and an increase in profit-taking and related sell-offs, international gold prices have shown a pattern of “spiking up, then falling back, and then shaking again.” On Monday, the London spot gold price at one point approached the 5,420 US dollar level. On Tuesday, international gold prices fluctuated and closed lower. It opened at 5,322.68 US dollars per ounce, rose as high as 5,379.87 US dollars per ounce, hit a low of 4,995.48 US dollars per ounce, and ultimately closed at 5,088.33 US dollars per ounce.

A commentary published by JinTuo News, a metals-industry media outlet, says that rising energy prices directly push up inflation expectations, and that inflation expectations are still the core structural driver of gold demand. The divergence between the two trends may only be a short-term phenomenon. For gold investment, analysts believe that the current gold price is already at a historical high, and in the short term it may experience violent fluctuations at those high levels. Investors should be cautious about pullbacks caused by profit-taking and a retreat in sentiment, but the medium to long-term upward trend of gold prices will not change.

Song Jiangzhen, Director of the Market Research Center at Guangdong Nanfang Gold Market Research Institute, said that the core logic behind recent fluctuations in international gold prices is the resonance of three forces: geopolitical catalysts, a tug-of-war over monetary policy expectations, and central banks’ gold purchase support. In the short term, volatility in international gold prices is intensifying; the main tone of medium to long-term expectations remains “volatility with an upward bias.” Beijing Business Daily reporter Zhao Tianshu