TOPSHOT – Foreign money sellers monitor trade charges in a international trade dealing room on the Hana Financial institution headquarters in Seoul on February 2, 2026. South Korea’s benchmark index Kospi tumbled greater than 5 % on February 2, in keeping with a sell-off throughout Asian markets amid recent worries about an AI-fuelled tech rally that has sparked fears of a bubble within the sector. (Photograph by Jung Yeon-je / AFP through Getty Pictures)
Jung Yeon-je | Afp | Getty Pictures
South Korea’s inventory market has swung wildly in current days, underscoring how the world’s best-performing equities market final 12 months is popping into its most risky one.
The benchmark Kospi index plunged as a lot as 12% on Wednesday, marking its largest single-day drop on file, earlier than staging a strong rebound within the subsequent session, up practically 10%, marking its finest day since 2008. It was buying and selling over 1% decrease on Friday.
The whipsaw comes as traders reassess dangers from the escalating warfare within the Center East, which has despatched oil costs surging and rattled markets globally, and the market’s focus in just a few shares.
Whereas the worldwide risk-off temper has performed a serious position, consultants stated Korean market’s focus in two reminiscence giants and its sensitivity to power shocks has made it significantly susceptible to sharp swings.
“Korea is a little bit of an outlier, should you have a look at the opposite inventory markets’ response,” stated Jason Hsu, chief government officer at Rayliant World Advisors. He added that the Kospi’s heavy focus in a handful of expertise shares, meant that market strikes are typically magnified relative to extra diversified indices.
Efficiency of South Korean shares year-on-year
“It’s pure its volatility is big,” he advised CNBC.
SK Hynix, is up practically 45% this 12 months, having skyrocketed 274% final 12 months. Equally, Samsung Electronics, which is up about 60% because the begin of the 12 months, surged 125% in 2025.
Each make up about one-third of Kospi’s complete market capitalization as of early November, in line with a report from the Korea Capital Market Institute.
That focus tends to amplify volatility: when the reminiscence chip cycle is robust the index can rally quickly, however when traders take earnings or sentiment turns risk-off, declines in these few heavyweight shares can drag all the market decrease, stated analysts.
The Kospi Volatility Index surged 27% to hit a file excessive on Wednesday on the peak of the sell-off. It has since dipped to round 8% on Thursday, however stays at file excessive ranges.
Retail leverage amplifies swings
One other issue amplifying the market’s strikes is South Korea’s massive base of retail traders and its lively derivatives market, in line with market veterans.
“That is simply an excessive amount of of the leverage buying and selling that is affecting the market,” stated Daniel Yoo, international strategist at Yuanta Securities.
“We had an enormous quantity of margin requires retail traders. So they simply dumped it… After which [on Thursday] it went again up once more. It has nothing to do with fundamentals.”
Retail traders have been among the many greatest consumers of Korean shares because the begin of the 12 months, typically utilizing margin accounts and through leveraged exchange-traded funds. Meaning sharp market drops can rapidly set off compelled promoting as margin calls hit, stated Yoo.
Particular person traders have been the largest contributors in South Korea’s inventory market on Thursday, in line with knowledge from the Korea Alternate.
Particular person merchants bought 19.7 trillion gained ($13.3 billion) price of Kospi shares and acquired about 21 trillion gained, making them the most important consumers in the marketplace and leaving them with internet purchases of roughly 1.3 trillion gained.
Particular person traders accounted for the most important share of buying and selling on the Kospi on Thursday, making up about 45% of complete turnover, in contrast with roughly 33% for international traders and 22% for establishments, in line with Korea Alternate knowledge on Thursday.
Including to the turbulence is Korea’s sensitivity to power costs. As a big importer of crude oil, the nation is especially susceptible to disruptions in international provide.
“Whereas we had seen sell-offs in main fairness markets pushed by the uncertainties across the Center East, it has been extra pronounced in South Korea [on Tuesday and Wednesday] given its comparatively increased dependence on crude oil imports,” stated JPMorgan Asset Administration’s international market strategist Raisah Rasid.
Semiconductor cycle nonetheless supportive
For now, the market’s choppiness might merely replicate the unwinding of an overheated rally, stated KB Securities’ Kim.
“Given the size of leveraged place of Korean retail traders and the anticipated extended uncertainty from the Iran state of affairs, it will be untimely to name for an instantaneous V-shaped restoration,” he added.
However with semiconductor earnings nonetheless sturdy and valuations stabilizing, different market watchers imagine the underlying fundamentals of South Korea’s fairness market stay intact, significantly within the semiconductor sector that dominates the index.
“The pullback seems to be knee-jerk and extra sentiment-driven at this stage, fairly than essentially pushed,” stated Kieron Poon, funding director of Asian equities at Aberdeen Investments.
Reminiscence costs, significantly for Dynamic Random Entry Reminiscence (DRAM), have been rising after a powerful 2025 and are anticipated to proceed rising via the primary half of 2026, supporting earnings for Korean chipmakers, he stated.
JPMorgan’s Rasid echoed that view, saying the long-term drivers for Korean equities stay sturdy.
“Whereas there are issues round demand destruction and stock hoarding, demand-supply dynamics within the reminiscence chips area is more likely to stay tight via this 12 months and probably the following,” she stated.
