From "best in the world" to "worst in the world", the Iran war "shoots down" the Korean stock market

# Translation

By Bao Yilong

Source: Wall Street CN

Soaring oil prices are weighing on the economic outlook of South Korea, a country highly dependent on energy imports. At the same time, doubts have begun to spread over the sustainability of demand for AI‑related memory chips. SK Hynix and Samsung Electronics together account for nearly 40% of the weight in South Korea’s benchmark stock index. Heavy foreign selling of the two stocks has become the core driver of the current sell‑off.

With the dual pressures of the Middle East conflict and cooling chip demand hitting simultaneously, the once high‑flying South Korean stock market is facing a severe test.

Since March, the KOSPI has fallen by 15%, ranking among the steepest declines in major global markets. Overseas capital has continued to flee at a pace approaching historical records. As of last Friday, the total market value of the South Korean market had evaporated by approximately $493 billion this month.

(KOSPI down more than 15% in March)

Soaring oil prices are weighing on the economic outlook of South Korea, a country highly dependent on energy imports. At the same time, doubts have begun to spread over the sustainability of demand for AI‑related memory chips.

SK Hynix and Samsung Electronics together account for nearly 40% of the weight in the KOSPI. Heavy foreign selling of the two stocks has become the core driver of the current downturn.

(Shares of Samsung Electronics and SK Hynix have retreated sharply from their 2026 highs)

## The Energy Trigger

Rising oil prices driven by tensions in the Middle East have been the direct trigger for this round of declines in South Korean stocks.

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

“I am avoiding South Korean stocks for now, as they face two major headwinds: the war and memory chips. Weathering one storm is hard enough; dealing with both at the same time is extremely challenging. We are entering a more uncertain environment, and coupled with crowded trades to some extent, the operational risks in the South Korean stock market have risen significantly.”

South Korea relies on the Middle East for more than 70% of its crude oil imports, leaving it highly exposed to oil price shocks. Authorities have begun studying expanded driving restrictions, reflecting genuine concerns over rising energy costs.

Meanwhile, elevated energy prices also raise the risk of a rebound in inflation and tighter monetary policy. Marvin Chen, strategist at Bloomberg Intelligence, noted:

“The market has not fully priced in war risks yet. If oil prices remain high, corporate earnings momentum could weaken further.”

The sharp market volatility has created an unusually turbulent trading environment. South Korea’s stock market circuit breaker, which pauses trading when the index drops 8% in a single day, has been triggered twice this month — accounting for a quarter of all such halts since 2000.

At the same time, the ‘side mechanism’ has been activated 10 times this year. This mechanism kicks in when KOSPI 200 futures move more than 5% in a day; for comparison, it was triggered only three times in all of 2025.

Matthew Haupt believes the frequent trading halts indicate a large amount of ‘unstable capital’ in the market, greatly increasing trading difficulty.

## Clouded Chip Outlook Keeps Some Investors on the Sidelines

Doubts over the sustainability of AI investment are eroding optimistic expectations for memory chip demand.

Google’s recently unveiled TurboQuant technology can significantly improve AI computing efficiency, leading the market to question future demand for high‑end chips.

According to a Goldman Sachs report, recent foreign outflows have been mainly driven by massive selling of SK Hynix and Samsung Electronics. Foreign ownership in both companies has fallen to the lowest level since 2022.

Despite the heavy sell‑off, the KOSPI is still up roughly 25% year‑to‑date, with its previous strong rally providing some buffer. The net value of the U.S.-listed South Korea equity ETF has retreated from its highs but remains some distance away from its upward trendline.

(EWY South Korea ETF, which tracks the MSCI Korea Index, has declined)

Some investors remain optimistic about the long‑term trajectory of South Korean stocks, citing solid demand for core memory products such as high‑bandwidth memory (HBM), strong growth in chip exports, and ongoing corporate governance reforms.

For now, however, many investors are choosing to stay on the sidelines, waiting for greater clarity on how the Middle East conflict will affect supply chains.

Gerald Gan, Chief Investment Officer at Reed Capital Partners, said:

“If the fighting continues for another one or two months, I will probably keep waiting. I won’t revisit South Korean stocks until at least the end of this year or early next year.”

He added that he currently prefers holding cash and increasing allocations to gold.

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## Risk Warning and Disclaimer

The market is subject to risks, and investments should be made with caution. This article does not constitute personalized investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Readers should consider whether any opinions, views, or conclusions in this article are appropriate to their particular circumstances. Any investment decisions made based on this article are at one’s own risk.