A sense of panic has gripped South Korean investors as the remarkable gains of their world-beating stock market suddenly evaporate. The KOSPI, South Korea's benchmark stock index, experienced its worst sell-off ever today, plummeting over 12%. This dramatic decline has left the usually bustling Korean Silicon Valley eerily quiet during lunchtime.
Workers, normally engaged in their daily routines, are now huddled over their smartphones, anxiously monitoring their trading portfolios. The market, which had doubled in value over the past year, is now in freefall, leaving investors reeling.
"I heard my colleagues exclaiming in disbelief as the KOSPI's losses deepened beyond 8% in the morning," said Jessica Chung, a resident of the high-tech hub of Pangyo in Seongnam. "The atmosphere was filled with a collective dread. People were even queuing up in the bathroom to find a quiet corner to trade."
The widening war in the Middle East and the resulting surge in oil prices have sparked a reevaluation of the AI boom that had propelled the KOSPI to unprecedented heights. South Korea, heavily reliant on energy imports, is particularly vulnerable to these global developments.
Chipmakers Samsung Electronics and SK Hynix, once the poster children of the rally, have each lost around 20% of their value this week. The KOSPI's overall decline stands at a staggering 18.4% after Tuesday's 7.2% tumble, erasing a total of $553.82 billion in market value.
Today, all but 14 of the KOSPI's 925 traded issues ended in the red. This historic drop triggered the first circuit breakers since August 2024, and the local currency, the won, also took a hit, briefly weakening past the psychologically significant 1,500 mark against the U.S. dollar for the first time in 17 years.
In a nation of approximately 52 million people, South Korea boasts an estimated 14 million retail traders, known as "ants," who account for about a third of daily stock trading. However, analysts suggest that these retail traders were not the primary catalyst for the cascading sell-off.
"Foreign outflows are definitely driving the move, particularly in the large-cap tech names that had led the rally year-to-date," said Tareck Horchani, head of Prime Brokerage Dealing at Maybank Securities in Singapore. "Korea had been one of the strongest markets globally, so positioning was crowded."
The escalating risk of a prolonged conflict in the Middle East carries significant implications for South Korea, the world's fourth-largest oil importer, which sources around 70% of its oil from the region.
Amidst the turmoil, there were a few bright spots. Daesung Energy, an LNG provider, soared by the daily limit of 30% after Iran's announcement of a blockade in the Strait of Hormuz. However, not all stocks behaved as expected. "Everything is red for me today, but Hanwha Aerospace is the biggest shocker," Chung remarked, referring to the defence giant's unexpected 8% drop on Wednesday, following a 20% jump the previous day due to valuation concerns.
As the dust settles on this tumultuous day, investors are left to grapple with the aftermath of a market that had been on a seemingly unstoppable upward trajectory. The question on everyone's mind: Will the KOSPI recover, or has the AI boom run its course?
