The combined pressures of the Middle East conflict impact and cooling chip demand have struck simultaneously, and the once-prominent South Korean stock market is now facing a severe test.
Since March, the Korea Composite Stock Price Index (KOSPI) has fallen by 15%, making it one of the biggest decliners among major global markets. Overseas capital continues to withdraw at a scale approaching historical records. As of last Friday, the market capitalization of the South Korean market has cumulatively shrunk by approximately $493 billion this month.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/35ffc6d4-988e-435a-a4a7-1d94bea67d82.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/35ffc6d4-988e-435a-a4a7-1d94bea67d82.png"/>
(The KOSPI has fallen by more than 15% in March)
Soaring oil prices are suppressing the economic outlook of South Korea, which is highly dependent on energy imports. Meanwhile, doubts are also spreading about whether the demand for memory chips related to artificial intelligence can be sustained.
SK Hynix and Samsung Electronics together account for nearly 40% of the KOSPI's weight. These two stocks have seen heavy selling by foreign investors, becoming the core of this downward trend.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/13e57ad6-9d33-438b-9e68-95fba235aebf.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="(Stock prices of Samsung Electronics and SK Hynix have significantly retreated from their yearly highs)" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/13e57ad6-9d33-438b-9e68-95fba235aebf.png"/>
(The stock prices of Samsung Electronics and SK Hynix have significantly retreated from their highs for the year)
<h2>Energy Trigger</h2>
The rise in oil prices triggered by tensions in the Middle East is the direct trigger for this wave of declines in South Korean stocks.
Matthew Haupt, a fund manager at Wilson Asset Management in Sydney, stated:
<blockquote>
I am currently avoiding South Korean stocks because they face the dual headwinds of war and memory chips. Fighting one tough battle is already difficult, but it is extremely hard to deal with both breaking out at the same time. We are entering a more uncertain situation, and with a certain degree of crowded trading in the market, the operational risks in the South Korean stock market have risen significantly.
</blockquote>
South Korea's reliance on the Middle East for over 70% of its crude oil imports makes it highly exposed to oil price shocks. Authorities have already begun studying expanded driving restriction measures, reflecting genuine concern over rising energy costs.
At the same time, high energy prices also increase the risks of inflation resurgence and tighter monetary policy. Marvin Chen, a strategist at Bloomberg Intelligence, noted:
<blockquote>
The market has not yet fully priced in the war risk. If oil prices remain high, corporate earnings momentum could further weaken.
</blockquote>
Significant market volatility has further created an unusual trading environment. The South Korean stock market's circuit breaker mechanism, which halts trading when the index falls by 8% in a single day, has been activated twice this month, accounting for a quarter of all circuit breaker events since 2000.
Meanwhile, the &#34;sidecar&#34; auxiliary mechanism has been triggered 10 times this year. This mechanism is activated when KOSPI futures fluctuate by more than 5% in a single day, compared to only three triggers throughout the entire year of 2025.
Matthew Haupt believes that the frequent trading suspensions indicate a substantial amount of &#34;unstable capital&#34; in the market, making trading much more difficult.
<h2>Chip Demand Outlook Clouded, Some Investors Wait and See</h2>
Concurrently, doubts about the sustainability of AI investment are eroding the optimistic expectations for memory chip demand.
Google's recently disclosed TurboQuant technology can significantly enhance AI operational efficiency, leading the market to question the future scale of demand for high-end chips.
According to a Goldman Sachs report, recent foreign capital outflows have been primarily driven by the large-scale selling of SK Hynix and Samsung Electronics, with foreign ownership ratios in both companies now falling to their lowest levels since 2022.
Despite the heavy losses, the KOSPI has still gained approximately 25% year-to-date, with the previous strong gains providing some buffer for the index.
Some investors remain optimistic about the long-term trend of South Korean stocks, citing reasons such as steady demand for core memory products like High Bandwidth Memory (HBM), strong growth in chip exports, and the continued progress of corporate governance reforms.
But for now, many investors are choosing to stay on the sidelines, waiting for the impact of the Middle East conflict on supply chains to become clearer.
Gerald Gan, Chief Investment Officer at Reed Capital Partners, stated:
<blockquote>
If the conflict continues for another month or two, I might continue to wait, at least until the end of the year or early next year before re-evaluating South Korean stocks.
</blockquote>
He added that he currently prefers holding cash and increasing allocations to gold.
Risk Disclosure and Disclaimer
Markets are subject to risk, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investing based on this information is at your own risk.

Recent escalation in Middle East conflicts has heightened market concerns over geopolitical risks. At the same time, international oil prices are fluctuating with the situation, impacting the global energy market and overall risk sentiment. Sectors such as energy, shipping, and technology could all face direct impacts.How long do you think the Middle East situation will affect the Hong Kong and U.S. stock markets? Is it a short-term fluctuation or a long-term impact? Feel free to share your thoughts!

Recent escalation in Middle East conflicts has heightened market concerns over geopolitical risks. At the same time, international oil prices are fluctuating with the situation, impacting the global energy market and overall risk sentiment. Sectors such as energy, shipping, and technology could all face direct impacts.How long do you think the Middle East situation will affect the Hong Kong and U.S. stock markets? Is it a short-term fluctuation or a long-term impact? Feel free to share your thoughts!

Escalating tensions in the Middle East—will oil price volatility stir the stock market?

SMSN

SSNGY

603578

09347

07347

07709

Under the dual pressures of the Middle East conflict and cooling chip demand, the South Korean stock market is facing a severe test. Since March, the KOSPI has fallen by 15%, with approximately $493 billion in market capitalization erased. Soaring oil prices are directly impacting economic prospects, with foreign investors heavily selling off SK Hynix and Samsung Electronics, exacerbating the market downturn. Concerns over war risks and high energy prices have intensified, leading to a significant rise in trading risks and two activations of the circuit breaker mechanism

- The South Korean stock market is facing significant challenges, with the composite index dropping over 15% in March due to pressures from the Middle East conflict and weakened chip demand.  
- Overseas funds are withdrawing rapidly, leading to a market value loss of approximately $493 billion this month, primarily influenced by the heavy selling of major stocks like SK Hynix and Samsung Electronics.  
- The reliance on oil imports exceeding 70% makes South Korea vulnerable to rising energy prices, alongside growing concerns about the sustainability of AI-related chip demand, prompting cautious investor sentiment.

From "World's Best" to "World's Worst": Iran War "Downs" South Korean Stock Market