Kospi Rally Stumbles: Leading Global Stock Drops 7% – What Factors Contributed to the Decline?
The South Korean stock market experienced a significant downturn on Monday, with the benchmark Kospi index plummeting 7% to close at 6,964.76. This decline was driven by escalating geopolitical tensions in the Middle East, particularly after Iran announced the closure of the strategically important Strait of Hormuz, which in turn spiked oil prices and heightened inflation concerns among investors.
Asian Markets React to Geopolitical Tensions
The sell-off in South Korea was part of a broader trend affecting Asian markets, with most major indices trading lower. Japan’s Nikkei fell by 1.12%, while China’s Shanghai Composite and Shenzhen Composite dropped 1.49% and 2.53%, respectively. Singapore’s Straits Times Index decreased by 0.23%, and Hong Kong’s Hang Seng Index was down 0.17%. The rise in crude oil prices also strengthened the US dollar and pushed bond yields higher, as investors anticipated potential interest rate hikes from the US Federal Reserve.
Technology Stocks Lead the Decline
Technology stocks were particularly hard hit in Seoul, with SK Hynix falling 10% and Samsung Electronics losing over 6%. These two companies account for nearly half of the Kospi’s total market weight, exacerbating the impact of the sell-off. The Kospi has now fallen more than 25% from its peak in June, firmly placing it in technical bear market territory. Last week, the index had already dropped nearly 8%, as investor confidence waned regarding the sustainability of rapid AI-related investments.
Concerns Over Semiconductor Valuations
The recent market correction has raised alarms about the valuations of AI-linked semiconductor companies, which have seen significant gains due to booming demand for advanced AI hardware. However, the latest sell-off underscores how quickly market sentiment can shift when doubts arise about the longevity of that demand. The concentration of the Korean stock market in a few semiconductor firms has made the Kospi particularly sensitive to changes in investor sentiment surrounding the global AI trade.
Despite the recent downturn, the Kospi remains the best-performing major stock index in 2026, having gained 63% so far this year, largely driven by AI-related semiconductor stocks. In commodity markets, oil prices continued to rise, with Brent crude up 4.28% at $79.26 per barrel and WTI crude rising 4.37% to $74.53 per barrel. Meanwhile, spot gold fell by 1.2% to $4,072.78 per ounce.
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