South Korea's Stock and Currency Markets in Freefall! Korean Won Falls to 17-Year Low

Under the dual influence of geopolitical risks and concerns over economic fundamentals, the Korean stock and currency markets have plunged into intense volatility, with the total debt in Korea accelerating rapidly. Currently, this highly export-oriented economy is facing severe tests.

On March 23, South Korea’s financial markets experienced a “Black Monday.” Amidst the dual pressures of geopolitical risks and economic worries, the Kospi Composite Index plunged over 6% intraday, triggering the circuit breaker. By the close, the Kospi fell 6.49%, to 5,405.75 points.

The Korean won against the US dollar broke through the 1,510 mark, hitting its lowest level in nearly 17 years since the 2009 global financial crisis.

Meanwhile, latest data released by the Bank for International Settlements (BIS) on March 23 shows that Korea’s total debt has hit a historic high of over 6,500 trillion won, equivalent to 2.5 times its GDP. Market panic, currency depreciation, and high debt levels are intertwined, putting this highly export-dependent economy under severe pressure.

Stock and Currency Double Hit

On the morning of March 23, the Korean stock market was shrouded in risk-averse sentiment from the opening. The Kospi opened at 5,580.15 points, down 201.05 points from the previous trading day, a 3.48% decline, with the decline quickly widening. After the Kospi dropped 5%, the Korea Exchange triggered the circuit breaker, pausing trading for five minutes.

For Korea, which relies heavily on energy imports, instability in the Middle East is a direct trigger. On February 27, the day before the escalation of US-Israel-Iran conflicts, the Kospi reached a record high of 6,347.41 points intraday, then experienced sharp fluctuations. US President Trump issued threats to Iran on March 21, demanding Iran open the Strait of Hormuz within 48 hours or face destruction of its power plants. Almost simultaneously, Iran launched missile attacks on Dimona in southern Israel, home to Israel’s nuclear facilities. This strike was seen as retaliation for earlier Israeli attacks on Iran’s Natanz uranium enrichment plant. As both sides issued tough statements and military actions escalated, fears of broader war intensified rapidly.

Bank of America recently issued a report describing Korea’s current stock market trend as a " textbook case of a bubble." The analysis notes that the extreme volatility of the Kospi resembles typical market behaviors seen during the 1997 Asian financial crisis, the 1999 dot-com bubble, and the 2008 global financial crisis.

BofA emphasizes that retail investors are the key drivers behind this historic rally, creating a classic “retail buying, foreign selling” bubble environment. Data shows that since the beginning of the year, Korean individual investors have net bought 22.16 trillion won worth of Kospi stocks, while foreign investors have net sold 37.53 trillion won, and institutional investors net bought 9.69 trillion won. This capital flow structure means that when the market turns, retail investors—lacking professional risk controls—will be the first to suffer losses.

According to market analysts cited by Yonhap News Agency, the impact of Iran’s blockade of the Strait of Hormuz has caused a surge in global oil prices, and investors’ safe-haven demand for assets like the US dollar remains strong, directly weakening the won.

On March 23, in Seoul’s foreign exchange market, the won opened at 1,504.9 per dollar, down 4.3 won from the previous close, with the decline widening throughout the day. It briefly fell to 1,511.8 won, hitting a new low since March 2009 (intraday 1,561 won).

Rich Privorotsky, head of European trading at Goldman Sachs’ One Delta desk, commented that for an energy-import-dependent economy like Korea, the current surge in oil prices is “completely unpriced” in Asian markets. This has led to a market environment where “fundamentals are being bypassed, entering a forced risk-off phase.” Investors are no longer selling what they want to sell but are selling what they can, with speculative long positions accumulated over recent months being rapidly liquidated.

Debt “Gray Rhino” Approaching

While stock and currency markets are experiencing intense turbulence, another long-hidden “gray rhino” is accelerating. According to the latest data from BIS released on March 23, by the third quarter of 2025, Korea’s non-financial sector credit—commonly referred to as the country’s total debt—has risen to 65.005843 trillion won (about 29.77 trillion RMB), surpassing the 65 trillion won mark for the first time in history. This scale is 2.5 times Korea’s GDP, indicating an extremely high dependence on debt.

The growth trajectory shows that Korea’s total debt is expanding at an accelerating pace. It took more than two years (Q1 2021 to Q4 2023) for total debt to grow from 5,000 trillion won to 6,000 trillion won, but only less than a year to increase from 6,000 trillion to 6,500 trillion won. As of the third quarter of 2025, total debt increased by about 280 trillion won compared to the same period in 2024, a 4.5% year-over-year increase.

More concerning is the imbalance in debt structure. As of the third quarter last year, government debt was 1,250.7746 trillion won, household debt was 2,342.6728 trillion won, and corporate debt was 2,907.1369 trillion won. Compared to a year earlier, government debt grew by 9.8%, far outpacing household debt’s 3% and corporate debt’s 3.6%. This clearly indicates that, in Korea’s debt accumulation process, the government has become the main lever, with public sector debt expanding faster than private sector.

Korea’s total debt as a percentage of GDP remains high. As of the third quarter last year, it reached 248.0%, up 1.5 percentage points from a year earlier. Although this ratio slightly decreased by 0.3 percentage points from the previous quarter (248.3%), it still remains around 2.5 times GDP, indicating that de-leveraging has not yet begun.

The Korea Times’ Asia Daily analysis points out that expansionary fiscal policies and increased government spending may push up inflation expectations and price pressures. The Bank of Korea’s recent “Monetary and Credit Policy Report” also warns that further fiscal expansion and concerns over fiscal sustainability could further boost inflation expectations.

From a macro perspective, Korea is experiencing an unprecedented leverage cycle. BIS data shows that government debt as a share of GDP has increased by 5 percentage points over the past year, reaching a record high.

Analysts warn that while fiscal expansion can temporarily offset economic slowdown, its side effects are emerging. Against the backdrop of the won’s significant depreciation due to geopolitical risks and risk aversion, rapid debt accumulation may further weaken sovereign credit ratings, creating a negative feedback loop.