KOSPI Plunges 450 Points in Biggest Drop Since Yen Carry Trade Shock

South Korea's stock market suffered a direct hit as Middle East tensions escalated sharply following the launch of U.S. military operations against Iran.

The KOSPI index, which opened at 6,165.15 on Friday, breached the 6,100, 6,000, 5,900, and 5,800 levels in succession, plummeting more than 7% in a single session. Samsung Electronics, with a market capitalization exceeding 1,000 trillion won, fell nearly 10%, while SK Hynix dropped 11%.

According to the Korea Exchange, the KOSPI closed at 5,791.91, down 452.22 points (7.24%) from the previous trading day. The decline marked the steepest single-day drop in approximately 18 months, since the yen carry trade unwinding shock on August 5, 2024 (-8.77%).

The index opened at 6,165.15, down 78.98 points (1.26%) from the previous session, and hovered around the 6,000 level before retail investors' defensive sentiment collapsed in the afternoon, pushing the index below 5,800.

Retail investors net purchased 5.8 trillion won worth of shares on the KOSPI, while foreign investors net sold 5.1 trillion won and institutional investors offloaded 891.7 billion won. The KOSDAQ also closed lower at 1,137.70, falling 55.08 points (4.62%).

Most top KOSPI stocks by market capitalization tumbled. Samsung Electronics closed at 195,100 won, down 9.88%, falling below the symbolic 200,000 won threshold. SK Hynix ended at 939,000 won, down 11.50%, surrendering the 1 million won level.

Other major decliners included Hyundai Motor (-11.72%), LG Energy Solution (-7.96%), Samsung Biologics (-5.46%), SK Square (-9.92%), Kia (-11.29%), and Doosan Enerbility (-8.84%). Among the top 10 stocks by market cap, only defense contractor Hanwha Aerospace posted gains, surging 19.83%.

Defense stocks broadly rallied as Middle East instability showed signs of prolonging. Hanwha Systems jumped 29.14%, while LIG Nex1 hit the daily upper limit with a 29.86% gain. Hyundai Rotem rose 10.20% and Korea Aerospace Industries added 3.13%.

Iran has been launching successive drone and ballistic missile strikes on U.S. military bases in neighboring Middle Eastern countries. Heightened security concerns could prompt regional nations to increase defense spending, potentially boosting earnings for Korean defense companies.

Shipping and airline stocks diverged as oil prices surged amid the Middle East conflict. Airlines, facing higher fuel costs, declined, while shipping stocks rose on expectations of increased freight rates.

Korean Air closed down 10.32%, with Jeju Air (-7.72%), T'way Air (-4.11%), and Jin Air (-5.09%) also weakening. Rising oil prices translate directly into higher fuel costs, which account for approximately 30% of airline operating expenses.

In contrast, shipping company HMM surged 14.75% and Pan Ocean jumped 17.42%. Increased maritime shipping risks from deteriorating Middle East conditions typically drive up freight rates, improving shipping companies' earnings.

"The KOSPI's decline widened as the market absorbed losses it couldn't reflect during the previous day's holiday, compounded by foreign investor profit-taking pressure following the recent index surge," said Lee Kyung-min, analyst at Daishin Securities.