The KOSPI plummeted more than 7%, breaching the 5,800 level, triggered by surging oil prices and fears of economic fallout from the U.S.-Iran military conflict. Analysts say Korea's overheated stock market, fueled by unprecedented capital inflows, has entered a correction phase. Some warn the index could fall to 5,300, with the pullback serving as a test of whether KOSPI fundamentals have truly improved.
According to the Korea Exchange on the 3rd, the KOSPI closed at 5,791.91, down 452.22 points (7.24%) from the previous session. The point drop was the largest on record. The percentage decline was the steepest since "Black Monday" on August 5, 2024, when yen carry trade unwinding triggered an 8.77% crash. The KOSDAQ briefly turned positive intraday but reversed course, closing down 55.08 points (4.62%) at 1,137.70.
Samsung Electronics fell 9.88% to 195,100 won, breaking below the 200,000-won threshold. SK Hynix dropped 11.5% to 939,000 won, falling under 1 million won. Other large-caps tumbled sharply: Hyundai Motor (-11.72%), SK Square (-9.92%), and Doosan Enerbility (-8.84%). Of 935 KOSPI-listed stocks, 842—approximately 90%—declined.
Foreign investors net sold 5.17 trillion won on the KOSPI alone, extending their selling streak to nine consecutive sessions amid currency volatility and profit-taking. This was the second-largest daily net sell-off on record, following 7.08 trillion won on the 27th of last month. Despite rebalancing concluding last month, selling pressure persists. The VKOSPI, Korea's fear gauge, surged 16.35% to 62.97—breaching 60 for the first time ever.
Experts attribute the volatility more to the market's prior rally than to the conflict itself. Policy expectations combined with FOMO drove basket-buying through ETFs, pushing gains beyond the pace of earnings improvement. Shin Joong-ho, Head of LS Securities Research Center, said: "The war is merely a trigger. The real driver is the correction of a structure that surged on ETF-based basket trading. Given 10-15% pullbacks in past momentum weakening phases, we should keep 5,300 open as a near-term downside target."
Other major Asian markets also fell for a second day. Japan's Nikkei 225 dropped 3.06%, Taiwan's TAIEX lost 2.2%, and Hong Kong's Hang Seng declined 1.11%—all smaller drops than KOSPI. With KOSPI's year-to-date gain at 37.44%—far outpacing Nikkei 225 (11.78%), Hang Seng (0.60%), S&P 500 (0.53%), and Nasdaq (-2.12%)—analysts note its heightened vulnerability to short-term shocks.
Brent crude futures rose from $72.50 per barrel on the 27th of last month to above $80 on the 3rd. JPMorgan projected Brent could reach $120 if the Strait of Hormuz remains blocked for three to four weeks.
Securities analysts view this plunge as more than a geopolitical shock—it tests whether KOSPI fundamentals have genuinely strengthened. Some maintain the medium- to long-term uptrend remains intact despite near-term volatility. Kim Tae-hong, CEO of GrowthHill Asset Management, said: "After Iraq's invasion in the 1990s, the KOSPI plunged about 13% but recovered most losses within a month. A correction to around 5,500 could present a buying opportunity."
Daishin Securities raised its year-end KOSPI target from 5,800 to 7,500, projecting total net profit could rise an additional 13.87% if semiconductor-led earnings upgrades materialize. Lee Kyung-min, analyst at Daishin Securities, said: "With semiconductors entering an upcycle, the speed and magnitude of earnings forecast upgrades are exceptional. Given the correlation between forward EPS and KOSPI, the uptrend should continue as long as earnings momentum persists."
Financial authorities have activated 24-hour emergency monitoring of equity, bond, and short-term funding markets, as well as foreign currency flows. They pledged strict enforcement against market misconduct including false information and price manipulation. Lee Chan-jin, Governor of the Financial Supervisory Service, said: "If the Middle East situation prolongs, rising oil prices and market volatility are concerns." He ordered formation of a Middle East emergency response task force.