South Korean stock market plummets 6.5%, retail investors counter the trend and buy 7 trillion won, setting a record

Tensions in the Middle East are putting downward pressure on risk assets. The Korean stock market plunged sharply on Monday, while retail investors bought the dip against the trend, with a net purchase of 7 trillion won in a single day, hitting a record high.

On March 23, the Korea Composite Stock Price Index (KOSPI) closed down 6.49%, the largest single-day decline since March 4, and has fallen 13% so far this month. The won against the US dollar dropped to 1,517.3, the lowest since March 2009.

According to reports from Xinhua News Agency citing Iranian media including Tasnim News Agency, the Iranian Islamic Revolutionary Guard Corps issued a statement saying that if the US attacks Iran’s power plants, Iran will retaliate against Israel’s power plants and those in regional countries supplying US military bases. The situation carries further escalation risks, raising concerns in global markets about deepening regional crises, which has dealt a significant blow to the previously AI-driven rally in Korean stocks.

In response to market turbulence, the Korean government quickly announced policy measures. Budget Minister candidate Park Hong-keun said the government will draft a supplementary budget plan as soon as possible. The government and ruling party have already agreed on an additional expenditure plan of about 25 trillion won (approximately $166 billion) to aid groups affected by soaring oil prices. Meanwhile, Shin Hyun-song, appointed as the new Bank of Korea governor on Sunday, stated that the bank will seek to maintain a “balance” in monetary policy between inflation, growth, and financial stability.

Stock Market Declines Across the Board, Circuit Breaker Triggered

The Korea Composite Stock Price Index (KOSPI) closed at 5,405.75 points on Monday, down 375.45 points or 6.49%, hitting a new low since March 9. During the day, extreme volatility triggered the circuit breaker (sidecar) mechanism for the fourth time this month due to Middle East tensions, but the index continued to decline after the halt. Of the 927 stocks traded, only 53 rose, while 864 fell, indicating a near-complete market sell-off.

In heavyweight stocks, chip giant Samsung Electronics fell 6.57%, SK Hynix dropped 7.35%, and the battery and automotive sectors also declined broadly. Funds flowed out, with foreign investors net selling about 3.7 trillion won, becoming the main force dragging the index down; institutional investors also sold net. Retail investors, however, bought against the trend, with a record single-day purchase of 7 trillion won.

The bond market also faced selling pressure. The yield on Korea’s 10-year benchmark government bonds rose 22.2 basis points to 3.880%, the highest since November 2023, reflecting market expectations of fiscal expansion and a decline in risk appetite.

Analysts: No Need for Excessive Pessimism, But Market Patience Is Running Out

Eugene Investment & Securities analyst Huh Jae-hwan said, “Market hopes that the war will end soon are fading.” He also pointed out that, given the solid foundation of Asia’s tech industry and the government’s push for additional budgets, there is no need for excessive pessimism, “but market patience has become fragile.”

This decline has reversed the KOSPI’s gains for the year. Before the Middle East conflict erupted, the index led global gains driven by AI themes, with a year-to-date increase of 28%. However, it has already retraced 13 percentage points this month. On the policy front, whether the support from the supplementary budget can stabilize market confidence remains to be seen.

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