South Korea’s stock market plunged 6.5%, while retail investors bucked the trend by buying a record 7 trillion won.

The comprehensive suppression of risk asset demand by escalating tensions in the Middle East led to a sharp decline in the South Korean stock market on Monday. Retail investors, however, bucked the trend and bottom-fished, with single-day net purchases reaching 7 trillion won, setting a historic record.

On March 23, the Korea Composite Stock Price Index (KOSPI) closed down 6.49%, the largest single-day drop since March 4, with a cumulative decline of 13% so far this month. The won fell to 1,517.3 against the dollar, the lowest since March 2009.

According to Xinhua News Agency citing multiple Iranian media including the Tasnim News Agency, the Islamic Revolutionary Guard Corps of Iran issued a statement saying, "If the United States strikes Iran's power plants, Iran will retaliate against Israel's power plants and power plants in regional countries supplying electricity to US military bases." The situation poses a risk of further escalation, triggering global concerns over a deepening regional crisis and causing a major setback for the previous AI-fueled rally in Korean stocks.

In response to market turmoil, the South Korean government quickly enacted policy measures. Budget Minister nominee Park Hong-keun stated that the government will soon draft a supplementary budget plan. Previously, the government and the ruling party had agreed on an extra spending proposal of about 25 trillion won (approximately $16.6 billion), aimed at aiding groups affected by soaring oil prices. Meanwhile, Shin Hyun-song, who was appointed as the new governor of the Bank of Korea on Sunday, remarked that they will seek to maintain a “balanced” monetary policy between inflation, growth, and financial stability.

Broad Stock Market Decline, Volatility Triggers Circuit Breaker

The Korea Composite Stock Price Index (KOSPI) closed Monday at 5,405.75 points, plunging 375.45 points, a 6.49% drop and the lowest closing since March 9. Volatility triggered the circuit breaker (sidecar) during the session, the fourth time this month due to the Middle East situation, though the index continued falling after the circuit breaker. Out of 927 stocks traded, only 53 rose and 864 fell, with the market almost completely collapsing.

Among blue-chip stocks, chip giant Samsung Electronics fell 6.57%, SK Hynix dropped 7.35%, and battery and auto sectors also generally declined. In terms of capital flows, foreign investors net sold about 3.7 trillion won, driving the index lower; institutional investors also net sold. Retail investors, however, stepped in, with single-day buying reaching 7 trillion won, setting a record for the largest single-day buy.

The bond market was also pressured. The yield on South Korea’s benchmark 10-year Treasury jumped 22.2 basis points to 3.880%, the highest since November 2023, reflecting both increased expectations for fiscal expansion and declining risk appetite.

Analysts: No Need for Excessive Pessimism, but Market Patience is Wearing Thin

Eugene Investment & Securities analyst Huh Jae-hwan said, “Hope for the end of war is fading.” He also pointed out that, given Asia's solid tech industry base and government moves towards extra budget measures, the market need not be overly pessimistic, “but market patience has become fragile.”

This round of decline has turned KOSPI’s gains this year from prosperity to concern. Before the Middle East conflict erupted, the index led global gains with its AI theme, and year-to-date gains still stand at 28%, but it has given up 13 percentage points this month. On the policy front, whether supplementary budget support can stabilize market confidence remains to be seen.

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