Seoul’s benchmark stock index plunged 12.3% on Friday, marking its worst single-day decline in over a decade, as escalating tensions in the Middle East triggered a wave of foreign selling. The Korea Composite Stock Price Index (KOSPI) closed at 2,569.89, a precipitous drop fueled by investor anxieties over the potential economic fallout from the conflict.
The sell-off was particularly pronounced among foreign investors, who offloaded a net 770.3 billion won ($575 million) worth of Korean shares, according to the Korea Exchange. This exodus reflects a broader risk-off sentiment sweeping through Asian markets, as investors seek safe-haven assets amid heightened geopolitical uncertainty.
The sharp decline in Seoul’s stock market also weighed heavily on the South Korean won, which tumbled to a 13-month low against the US dollar. The won closed at 1,318.80 per dollar, a significant depreciation that raises concerns about imported inflation and potential pressure on the country’s export-oriented economy.
Despite the widespread panic, a surprising counter-trend emerged as retail investors, dubbed “Donghak Ants” – a reference to the early 20th-century Korean peasant rebellion – collectively purchased 7.7 trillion won ($5.7 billion) worth of stocks. This buying spree, however, was insufficient to offset the massive foreign selling pressure and prevent the KOSPI’s dramatic fall. The 조선일보 reported that this activity defied the prevailing war fears.
Analysts attribute the foreign investor retreat to fears that the Middle East conflict could disrupt global supply chains, particularly oil supplies. South Korea is heavily reliant on imports of crude oil from the region and any disruption could have a significant impact on its energy security and economic growth. Morgan Stanley recently downgraded Indian stocks, adding to the negative sentiment in Asian markets, according to Bloomberg.
The Korean Ministry of Economy and Finance has yet to issue a formal statement addressing the market turmoil, but officials have reportedly been monitoring the situation closely. The Bank of Korea has not signaled any immediate intervention in the foreign exchange market, but remains prepared to take action if the won’s depreciation becomes excessive.
Further complicating the situation, the Seoul stock exchange is scheduled to review its circuit breaker rules next week, potentially altering the mechanisms used to halt trading during periods of extreme volatility. The outcome of this review remains uncertain, leaving investors bracing for further potential turbulence.
