Just one day after recording its sharpest decline in history, South Korea's KOSPI index surged more than 11% on Thursday, creating one of the most dramatic reversals the index has ever witnessed.
No major economy depends on the stability of the Middle East as much as South Korea – and this week is clear evidence of that.
The recovery of KOSPI and KOSDAQ
South Korea's two main stock indices – KOSPI (focused on large- Capital companies) and KOSDAQ (heavily geared towards the technology sector) – are currently among the most dynamic markets in Asia and are important indicators of the sentiment of South Korean retail investors.
By mid-morning, the KOSPI index had risen to 5,682 points — up from Wednesday’s closing high of 5,093 points — after touching a session high of 5,715 points. The KOSDAQ also recovered above the 1,000-point mark, gaining over 11%. The morning session triggered a buy sidecar – a stark contrast to the sell sidecar and market-wide trading halt that occurred on Wednesday . The won also strengthened noticeably, falling from its overnight high of 1,505 to near 1,461.
The reason for this reversal was the stabilization of oil prices, with Brent at $81.40 and WTI at $74.66, along with news of behind-the-scenes talks between Washington and Tehran, which boosted investor sentiment across Asia. Wall Street closed higher on Wednesday, with the Nasdaq up 1.29%, led by Tesla (+3.44%), Amazon (+3.95%), and Nvidia (+1.66%).
Samsung Electronics and SK Hynix — stocks that had previously fallen 21% and 22.75% respectively from their peaks in late February 2024 — both rebounded by 13–15% this morning. Foreign investors, who had used both stocks to withdraw Capital during market panic, returned to net buying of over 710 billion won this morning. Domestic retail investors also contributed nearly 600 billion won.
Why did South Korea experience a sharper decline than any other country?
This level of collapse and recovery reflects the structural reality of the South Korean market. In the two sessions of March 3-4, 2024, the KOSPI and KOSDAQ plummeted 18.43% and 17.97% respectively – making them the world's worst-performing indexes. Japan fell 6.57%, Taiwan 6.46%, while China's Shenzhen index dropped only 3.76%. The US market was largely unaffected, declining by less than 0.35% combined.
South Korea imports over 70% of its energy from the Middle East, and its economy is heavily reliant on exports, making it extremely sensitive to commodity shocks. With concerns about a potential US and Israeli attack on Iran leading to a blockade of the Strait of Hormuz, global risks have been concentrated in Seoul. The KOSPI's sharp decline on Wednesday, reaching 12.06%, even surpassed the 12.02% drop immediately following the 9/11 attacks – a record that has stood for 25 years.
What will happen next?
Analysts are cautiously optimistic but warn that the path forward remains heavily dependent on geopolitical developments. One analyst argues that if Iran persists in its blockade of Hormuz, it will put itself at significant disadvantage due to reduced foreign exchange earnings and a greater risk of military confrontation. Another emphasizes that a mediator would reverse the market's direction. At current levels, he says, "buying opportunities are quite clear."
Mirae Asset aims for the KOSPI index to recover to the 5,800 point range in the short term. Kiwoom Securities assesses that the past two days' drop has incorporated all the "war risk premium" into stock prices.
Implications for the crypto market
In the crypto market, as BeInCrypto reported Wednesday morning, buying pressure from South Korean retail investors remained quite resilient amidst the stock market crash — notably, newly listed Token on Upbit and Bithumb both surged by double digits even as stocks fell. However, the strong stock market rebound on Thursday morning could quickly absorb the Capital flowing back into the crypto market.
With both domestic and foreign investors injecting over 1.3 trillion won back into the stock market in a single morning, the appeal of stocks immediately overshadowed crypto. In fact, during the period when the KOSPI rose over 85% since President Lee's term, crypto volume in South Korea also fell by over 80%, and this V-shaped recovery in stocks could potentially wipe out the crypto Capital that emerged during the panic two days ago.
The won has recovered significantly from 1.505 to nearly 1.461, making holding crypto as a hedge against exchange rate fluctuations less attractive than during periods of instability. This is clearly reflected in the data: Bitcoin rose 6.4% against the USD in the last 24 hours, but the price on Upbit (calculated in won) only increased by about 5% — meaning the won's recovery eroded more than 1 percentage point of the price increase.
If geopolitical risks continue to ease, the KOSPI is likely to approach Mirae Asset's target of 5,800 points. And traditionally, the money of South Korean retail investors— who are always most sensitive to global market fluctuations—will once again flow into equities, not crypto.
