An interesting phenomenon was observed in the Korean market early last year. The KOSPI surged wildly for 34 days from 5,000 to 6,000 points, but when geopolitical tensions in the Middle East arose, the market plummeted sharply within just two days, prompting multiple trading halts, dropping from 6,244 to 5,440 points, approximately a 13% decline, the most severe correction since 2008.

The main cause stemmed from the interconnectedness of several factors. Half of the Korean stock market's rise was driven by just two companies: Samsung and SK Hynix. Both are producers of HBM or high-bandwidth memory, a critical component of AI chips that NVIDIA requires. Together, these companies control over 80% of global production capacity, making the Korean stock market a direct bet on AI chips.

But this is also a weakness. HBM chips require a large amount of electricity to produce. South Korea does not produce natural gas or coal domestically and must import all of it. About 27% of the energy comes from these sources, and Korea is the third-largest importer of liquefied natural gas in the world. Most LNG ships must pass through the Strait of Hormuz, only 33 kilometers wide.

In early March last year, tensions between the U.S. and Iran escalated. Iran threatened to close the strait, causing oil and natural gas prices to spike immediately. Europe saw prices increase by nearly 50%, Asia by nearly 40%, causing panic among investors.

The Korean market closed on March 31, the day of the incident, while other markets had already sold off. When trading resumed on Tuesday, the three-day panic was condensed into red candlesticks. Samsung fell nearly 10%, SK Hynix dropped 11.5%. Wednesday was even more severe. Meanwhile, other companies benefiting from the tension, such as Hanwha Aerospace and LIG NEX1, which produce weapons and defense systems, surged about 20-30%. The market split into two camps.

What this indicates is that foreign investors quickly withdrew. On one day, they sold off 6.8 trillion won, the largest in history. The next day, another 5.1 trillion won was sold. In two days, nearly $8.5 billion USD—half of the inflow over six weeks—disappeared. Retail investors in Korea stepped in to buy the dip but could not stop the outflow from foreigners.

The lesson learned is that markets which rise rapidly by 75% in a year often harbor hidden risks. The so-called "Korean discount" still exists. Although the new president is trying to address management issues, deeper problems remain. The market relies heavily on just two stocks, energy depends on imports, and imports depend on a strait that could close at any moment.

The fundamentals of SK Hynix and Samsung remain strong. The demand for AI processing power is real. NVIDIA’s orders haven't disappeared. But the key lesson is that the rise is based on fundamentals, while the fall is driven by emotion. Fundamentals move slowly, but emotions move very quickly. A 34-day rally can be halved in just two days. Anyone buying Korean stocks must understand that the market is about numbers, but also about the external world that is constantly changing.