South Korea's stock market, which had posted the world's best returns this year, plunged below the 5,800 level amid fallout from tensions between the United States and Iran. The 7.24% single-day drop marks the largest decline in 19 months since the yen carry trade unwinding shock of August 5, 2024, when the index fell 8.77%.
The market experienced its worst "Black Tuesday" as concerns over surging oil prices intensified after Iranian authorities raised the possibility of blocking the Strait of Hormuz. Short-term overbought conditions in the KOSPI and foreign investors' profit-taking pressure driven by dollar strength compounded the selloff. Market analysts say this Middle East-triggered shock will test whether the KOSPI's fundamentals have truly improved.
According to the Korea Exchange on March 3, the KOSPI closed at 5,791.91, down 452.22 points (7.24%) from the previous trading day. The index erased two weeks of gains in a single session. The KOSPI 200 futures index also plunged more than 5%, triggering a sidecar—a temporary halt on program sell orders—for the first time in a month. Total market capitalization of the KOSPI market fell to 4,769.43 trillion won, evaporating 376.94 trillion won from the last trading day on February 27. The KOSDAQ also declined 55.08 points (4.62%) to close at 1,137.70.
Foreign net selling drove the KOSPI lower. As Middle East tensions escalated, Brent crude futures for May delivery on the ICE Futures Exchange breached $80 per barrel during trading. The won-dollar exchange rate also surged, prompting foreign investors to lock in profits. The won closed at 1,466.1 per dollar, up 26.4 won from the previous session, marking the highest level in about a month since February 6 (1,469.5 won).
Individual investors net purchased 5.82 trillion won in the stock market in a single day, defending the index's downside. However, foreigners sold 5.18 trillion won, dragging the index lower. Foreign net selling on the main bourse was the second-largest on record, following the 7.08 trillion won sold on February 27. In just two trading days, foreign investors dumped 12.26 trillion won worth of shares.
The sharp decline in semiconductors, which had been driving the domestic market, also weighed heavily on the KOSPI. Samsung Electronics and SK hynix, the two largest companies by market capitalization, both lost their symbolic price milestones of "200,000-won Samsung" and "1-million-won hynix." Samsung Electronics fell 9.88% to close at 195,100 won, while SK hynix dropped 11.50% to 939,000 won.
"The domestic stock market is currently experiencing heightened 'volatility,' but if the Iran situation prolongs, it will affect the broader economy including corporate earnings and interest rates," said Lee Jin-woo, head of Meritz Securities Research Center.