South Korean shares tumbled more than 10% on Wednesday, slicing off roughly $430 billion in market value this week as the won slid to a 17-year low amid an expanding conflict in the Middle East that has pushed oil sharply higher and unnerved investors.
Global military strikes and reprisals centred on Iran and surrounding waters - including strikes by Israeli and U.S. forces on Iranian targets and retaliatory actions across the Gulf as the conflict spread to Lebanon - prompted a wave of selling in Seoul where the benchmark market had been the world’s standout performer over the last year.
The KOSPI fell 592.78 points, a 10.23% drop, to 5,199.13 as of 0320 GMT, having activated circuit breakers for the first time since August 2024 and a trading curb for a second consecutive session. If the losses persist through the day, the index will register its largest single-day percentage decline since October 2008.
Market capitalisation losses have been severe. Over the past two days the index has surrendered 634.1 trillion won - equivalent to $429.01 billion - and the two-day slide followed Tuesday’s 7.24% fall, which was the biggest daily percentage drop since August 2024. The brutal moves have been driven in part by rapid foreign selling as investors rebalanced risk in response to the spike in oil and currency turmoil.
The currency market also saw acute stress. The won briefly pushed past the 1,500 per dollar level overnight, touching 1,505.8 - its weakest level since March 2009 - before finishing that session down 3.1% at 1,485.7. By Wednesday it had recovered modestly to 1,477.6, up 0.6% on the day.
Energy considerations were central to the market reaction. A drawn-out war in the Middle East carries specific consequences for net oil importers like South Korea, which depends almost entirely on imported energy and sources about 70% of its oil from the Middle East. That concentration leaves the economy and markets especially exposed to a sustained spike in crude prices.
"This looks more like a positioning unwind and risk reduction rather than a fundamental deterioration in earnings," said Tareck Horchani of Maybank Securities in Singapore, noting that the market had been crowded after a yearlong AI-driven surge. He added that when oil jumps and FX volatility rises, global funds tend to de-risk quickly from the most liquid index heavyweights in oil-importing markets such as Korea and Japan.
BNY Mellon economists pointed to South Korea’s energy dependence as a key factor behind the overnight focus on the KOSPI and the won. The sudden shift in sentiment ran counter to comments from the Bank of Korea governor last week, when Rhee Chang-yong said the currency was strengthening due to improving foreign exchange supply-demand conditions; the won had recently reached its strongest level since October 30, 2025.
Authorities signalled vigilance. The Bank of Korea said it would "closely watch if won exchange rates and bond yields deviate excessively from domestic fundamentals even with external factors in consideration," and stated it would act against herd-like behaviour. Finance Minister Koo Yun-cheol echoed that officials were monitoring the foreign exchange market closely. A local currency trader observed that "(Dollar-won) upside is now open for exchange rates with the 1,500 level breached."
Seoul has already implemented measures to steady the foreign exchange market since late last year. President Lee Jae Myung, in unusually direct remarks in January, said he expected the won to strengthen toward the 1,400-per-dollar area within a month or two.
The breadth of the selloff in equities was stark. Of 925 issues traded, just 16 advanced while 908 declined. Major technology names that had been pillars of the rally fell sharply: Samsung Electronics dropped 9.7% and SK Hynix slid 7.2%. Auto heavyweight Hyundai Motor plunged 13.1%. Airlines were weak as well - Korean Air Lines fell more than 5% on Wednesday after a 10.3% plunge on Tuesday, the carrier’s biggest daily drop since March 2020.
Foreign investors were net sellers of local shares worth 1.1 trillion won on the day, extending a streak of outward selling to a 10th straight session.
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