South Korea's benchmark KOSPI index plummeted 7.24% to 5,791.91 on Tuesday, marking its steepest single-day decline since the yen carry trade unwinding shock in August 2024. Foreign investors sold a net 5.18 trillion won ($3.6 billion), the second-largest daily outflow on record, as Middle East tensions triggered a flight from risk assets.
The selloff, triggered by escalating U.S.-Iran conflict and fears of a Hormuz Strait blockade, hit Korean markets harder than other major Asian exchanges. Samsung Electronics fell 9.88% while SK hynix dropped 11.50%, with both semiconductor giants leading the index decline.
"If the Iran situation drags on, it will affect corporate earnings, interest rates, and the broader economy," said Lee Jin-woo, head of research at Meritz Securities.
Stagflation Fears Mount
Oil prices surged back above $80 per barrel while the won weakened to 1,466 against the dollar, sparking warnings of simultaneous inflation and economic slowdown. The U.S. two-year Treasury yield rose from 3.37% to 3.48%, while Korea's 10-year government bond yield climbed 14.8 basis points to 3.594%.
Hyundai Research Institute estimates that if annual average oil prices reach $100 per barrel, inflation would rise 1.1 percentage points while GDP growth would fall 0.3 percentage points. Under a $150 oil shock scenario, growth could stall at around 1%.
Korea ranks first among OECD nations in crude oil consumption per $10,000 of GDP at 5.63 barrels, making it most vulnerable to inflationary pressures, analysts said.
Defense Stocks Surge to Record Highs
Amid the broader market carnage, defense stocks defied the selloff. LIG Nex1 soared 29.86%, Hanwha Systems jumped 29.14%, and Hanwha Aerospace gained 19.83%, all hitting 52-week highs.
Hanwha Group's market capitalization reached 177.9 trillion won, surpassing HD Hyundai to become Korea's fifth-largest conglomerate.
Morgan Stanley said heightened geopolitical risks would reinforce a structural upcycle in defense spending, recommending portfolio diversification through energy and defense themes. Hana Securities raised its target price for LIG Nex1 to 710,000 won, citing improved export visibility for the Cheongung-II missile system.
Other Market Developments
Kiwoom Securities plans to launch retirement pension services in June after applying for regulatory approval, leveraging its leading position in retail brokerage. KG Mobility announced U.S. market entry plans, targeting 200,000 vehicle sales and 7.3 trillion won in revenue by 2030.
At a seminar marking the 70th anniversary of Korea's stock market, experts called for governance reforms and improved information access to restore foreign investor confidence. Korea Exchange Chairman Jung Eun-bo pledged institutional improvements for MSCI developed market index inclusion and expanded English-language disclosures.
