On Wednesday, South Korea’s Kospi experienced its largest single-day drop on record, following a significant downturn from the previous trading day amid a widespread decline in Asian markets, as a worsening conflict in the Middle East impacts investor confidence.
The Korea Exchange temporarily suspended trading for the Kospi index on Wednesday. A circuit breaker was also triggered on the Kosdaq, which closed down 14% at 978.44.
The Kospi index concluded the day 12.1% lower at 5,093.54, with major players SK Hynix and Samsung Electronics tumbling approximately 10% and almost 12%, respectively.
The South Korean market had seen remarkable growth last year, surging more than 75%, and continued to rise into the new year, with the Kospi reaching new highs due to semiconductor giants benefiting from robust demand for memory chips.
The drop in the KOSPI is largely due to the high concentration of individual stocks in the Korean markets, according to Lorraine Tan, Asia director of equity research at Morningstar.
Data from Morningstar indicates that memory leaders Samsung and SK Hynix make up nearly 50% of the index.
“The decline in stock prices is partly a result of profit-taking following a substantial upswing in a risk-averse environment, but it also signals increasing concerns that the pace of AI datacenter adoption may decelerate due to its considerably higher energy expenses compared to standard data centers,” Tan stated.
Moreover, South Korea’s stock market is quite reactive to fluctuations in oil prices, which means geopolitical instabilities in the Middle East often prompt short-term volatility, said Daniel Yoo, global market strategist at Yuanta Securities.
Being a significant oil importer, Korea’s manufacturing-centric economy is sensitive to rising energy costs, which can negatively affect industrial and export-focused sectors when crude prices surge.
Yoo remarked that the recent decline in the Kospi should be interpreted as a correction after a strong uptrend rather than a fundamental change in market outlook, adding that stability is expected to return once oil prices stabilize.
South Korea’s net oil imports constitute 2.7% of its gross domestic product, with Nomura identifying it among the most susceptible to current account pressures.
Japan’s Nikkei 225 decreased 3.61% to 54,245.54 while the Topix fell 3.67% to 3,633.67.
Investors across the region are also keeping an eye on an annual parliamentary gathering of China’s lawmakers beginning later today.
The meeting, referred to as the “Two Sessions,” includes a consultative congress starting today, and a National People’s Congress scheduled to commence Thursday. Chinese Premier Li Qiang is expected to unveil a series of economic objectives at the NPC, which have largely been determined during a December meeting.
Australia’s S&P/ASX 200 declined 1.94% to 8,901.2. The Hong Kong Hang Seng index dropped over 2.28%, while the mainland CSI 300 decreased 1.14% to 4,602.62.
China’s manufacturing sector showed signs of weakness in February as companies halted production and cargo shipments for an extended holiday, according to an official survey released on Wednesday.
The official manufacturing purchasing managers index fell to 49 in February, as per the National Bureau of Statistics, falling short of economists’ prediction of 49.1.
Oil prices continued to rise, with U.S. crude futures increasing 2.8% to $76.65, while Brent climbed 3.03% to $83.86 per barrel due to the escalating conflict, with Iran seeking to block the Strait of Hormuz.
An Iranian Revolutionary Guard commander stated on Monday that the critical waterway had been closed and warned that any ship attempting to navigate through would be targeted, according to Iranian news outlets.
U.S. President Donald Trump announced Tuesday afternoon that the U.S. Navy will escort tankers through the Strait of Hormuz, if required.
“Regardless of circumstances, the United States will guarantee the FREE FLOW of ENERGY to the WORLD,” he stated in a Truth Social post. “The ECONOMIC and MILITARY MIGHT of the United States is the GREATEST ON EARTH — More actions are forthcoming.”
Prices for precious metals increased. Spot gold rose 1.64% to $5,170 per ounce, while spot silver surged nearly 3% to $84.49 per ounce.
Overnight in the U.S., stocks experienced another turbulent session as apprehensions about a prolonged U.S.-Iran conflict shook the markets.
The Dow Jones Industrial Average declined 403.51 points, or 0.83%, closing at 48,501.27. The S&P 500 fell 0.94% to end at 6,816.63, while the Nasdaq Composite dropped 1.02% to settle at 22,516.69. At their lowest points of the day, the S&P 500 was down 2.5%, and the Nasdaq saw a drop of around 2.7%. The 30-stock Dow was down more than 1,200 points, equating to about 2.6%, at its lowest mark.
—CNBC’s Lim Hui Jie, Sean Conlon and Pia Singh contributed to this report.
