Korean stock market, staying calm is not easy.

Author: Yuan Chuan Investment Commentary

The recent Korean stock market performance is like the “Ten Rings Roller Coaster” at Chimelong.

At the end of February, the conflict between the U.S., Iran, and Israel erupted. Global stock markets, expecting a quick resolution in the Middle East, managed to survive the first trading day on March 2nd. However, Korea’s stock market was closed all day due to a holiday.

When it reopened on March 3rd, the expectation of a swift Middle East conflict had completely shifted. The Strait of Hormuz, under blockade, directly caused chaos in the global oil and gas markets. Meanwhile, Korea’s popular KOSPI index plunged into relentless decline.

On March 3rd, the KOSPI temporarily hit the circuit breaker, ultimately dropping over 7%. The next day, it hit the circuit breaker again, closing with a single-day decline of 12.06%, setting a record for the largest drop ever.

That evening, the Korean Financial Services Commission announced an immediate injection of 100 trillion won (about $680 billion) into the financial market stabilization fund. The following day, the KOSPI rebounded sharply by 9.63%.

But volatility did not stop there. This week, Korean stocks continued to swing wildly, like a bipolar disorder, with a nearly 6% decline on Monday, then a 5.35% rise on Tuesday. The market kept losing money, repeatedly teaching investors expecting a violent rebound the basics of “volatility decay.”

Meanwhile, statistics from the Korea Exchange revealed an interesting phenomenon. Since March, domestic retail investors have been net buyers, while foreign investors have been net sellers. This seems to echo the 2020 pandemic storm, where higher volatility led to greater foreign investor panic and retail investors going their own way.

Before these days of sharp rises and falls, the Korean stock market experienced an unprecedented upward cycle. From 2025 to late February 2026, the KOSPI surged over 160%, making it the MVP of global markets. During this “bull market,” the KOSPI doubled from 3,000 to 6,000 points in less time than the fastest record in Nasdaq history.

This explosive growth, combined with extreme fluctuations during crises, creates a complex picture of the Korean stock market.

Black Swan Eve

From the curve, it’s clear that the KOSPI’s rise began after the tariff war bottomed out in April last year.

At that time, global markets trembled amid Trump’s latest tariff trade war. After a 7% decline in early April, the KOSPI started climbing out of the trough. Even a brief correction in November was seen as a market signal of “recovery.”

Korea’s renewed enthusiasm after 2026 became unstoppable. By January, the KOSPI nearly achieved a year’s worth of growth; February saw increased volatility but continued upward acceleration.

On the first trading day of February, the KOSPI retraced 5.26%, the largest pullback during this rally, but external conditions remained stable. This “stress test” was quickly recovered amid oscillating gains. On February 25th, the KOSPI first crossed 6,000 points. On the last trading day of February, it hit a high of 6,347.41 points intraday, then retreated, ending the month down 1%.

Rapid gains are not without reason, aligning with the principle that higher concentration and elasticity lead to bigger swings.

Looking at the index composition, although officially called the Korea Composite Stock Price Index, it is essentially a highly concentrated “race track gambler.” The market value of the two giants in memory chips, Samsung and SK Hynix, accounts for one-third of the Korean stock market. The KOSPI’s rise heavily depends on these two core stocks.

Before March, the KOSPI was a pure AI mapping index. As long as the chip shortage persisted and Capex increased, Samsung and SK Hynix held the key to AI-era “new oil.”

Demand for high-end products like HBM (High Bandwidth Memory) for AI large models continued to surge, while traditional DRAM/NAND faced supply constraints due to capacity expansion, turning storage into the most popular wealth code of 2026.

From late 2025 to early 2026, Samsung and Hynix mainly announced price hikes—DRAM/NAND prices were sharply increased for three consecutive quarters starting in Q3 2025. Meanwhile, HBM4, still ramping up production, became a seller’s market, with capacity already divided among AI giants by 2026. Even with money, one could only wait for the 2027 supply.

However, when the world realized that the unstable Gulf would cut off stable oil supplies, the grand narrative of the future was quickly replaced by the immediate energy shortage. Especially Korea, heavily dependent on Middle Eastern oil and gas, saw its FOMO-driven “AI mapping king” story downgraded overnight to “victim of high oil prices” and HALO anxiety.

In the first two trading days of March, Samsung and Hynix fell about 10% consecutively.

In fact, before this “Black Swan” event, both domestic Korean funds and foreign investors had already diverged. In February, the average daily trading volume reached 32.23 trillion won (about 1,492 billion RMB), up 19% from January, setting new records for both index and trading volume.

From a technical analysis perspective, the surge to new highs signals a classic “intermarket XX” pattern.

Since May last year, foreign investors have maintained a net buy stance overall, but after the KOSPI hit 6,000, they began to sell in bulk. In February, net foreign sales hit a record high of 21.1 trillion won (about 998 billion RMB). On February 27th, when the index hit a new intraday high of 6,347.41, foreign net sales reached 7 trillion won (about 324 billion RMB).

But these profits may not have anticipated that the unbalanced structure of the Korean stock market would pay such a heavy price for the “epic fury” and “true commitments” from the Middle East.

Self-Help of the Underperformers

Such dramatic rises and falls naturally raise questions about the historical volatility of the Korean stock market.

In fact, over the past decade, among the four major Asia-Pacific indices (CSI 300, Hang Seng, Nikkei 225, and Korea Composite), the CSI 300’s annualized volatility is 18.12%, KOSPI is 18.90%, and Nikkei 225 ranks second at 20.50%. The Hang Seng leads with 21.79%, which is not surprising.

Before 2025, the KOSPI only experienced one major fluctuation in 2020, with a storyline similar to March this year—Korean stocks were hammered down during heavy foreign selling, then retail investors entered to buy the dip, pushing the market higher.

Korea’s long-term low volatility has been coupled with an awkward “Korean discount.”

Over the past decade, Korea’s stock market’s P/B ratio has hovered around 1x, occasionally rising but then returning to low levels. Only after the spectacular rally since last year did it reach a high of 2x in February this year.

Even though Korea’s overall market appeal is limited, and only Samsung and Hynix are the main buyers, Taiwan’s semiconductor index typically has a P/B ratio around 2.4.

The “Korean discount” can be seen as a collective global investor critique—issues are not just about index bias but also about governance models of large listed companies, which often lack transparency and tend to suppress stock prices or avoid dividends to evade inheritance and dividend taxes, or use cash for reckless diversification. All these factors have made Korean stocks notorious for being “stingy” to small shareholders.

Recent Korean presidents have all made “solving Korea’s discount” a key agenda.

Former President Moon Jae-in encouraged institutional investors like the National Pension Service (NPS) to participate actively in corporate governance, trying to address low valuations by limiting chaebol cross-shareholdings and strengthening minority shareholder rights.

Predecessor Yoon Suk-yeol launched a “Corporate Value Enhancement Plan,” aiming to boost the market through tax cuts, voluntary disclosure, and increased dividends. But he resigned amid political turmoil in April 2025, and the “Korean T-Estimate” faded away.

In June 2025, current President Lee Jae-myung took office, advocating radical reforms of the capital market, with a campaign slogan to push the KOSPI to 5,000 points.

As a former seasoned retail investor (with losses), Lee Jae-myung has long been frustrated by unfair dealings by major shareholders, which he sees as a key reason for retail investor losses.

After taking office, he implemented a series of reforms, including but not limited to: mandating the cancellation of treasury stocks used by chaebol families to maintain control; strengthening board accountability; reforming dividend taxes to encourage payouts; and guiding citizens to shift assets from high-risk real estate speculation to financial assets.

Lee often emphasizes his own background as a retail investor and claims that once his political career ends, he will return to stock trading.

Whether driven by top-down strategic needs or personal experience, Lee’s enthusiasm for reform has helped the KOSPI surpass 5,000 points within less than a year of his tenure. Despite recent volatility, the index has risen over 100% since he took office.

Before the Gulf crisis, Lee’s market reforms drew considerable attention. Bloomberg even published an article titled “How Korea’s President is Making the Korean Stock Market the Best in the World,” calling him a hero among Korea’s 14 million retail investors.

Of course, that article was published on February 22, 2026, when ships still navigated the Strait of Hormuz normally, investors debated the future of AI in Citrini’s “2028 Smart Crisis,” and oil prices remained stable above $60.

Epilogue

If Lee Jae-myung’s reforms aimed to address “rules” and “distribution,” trying to fix long-term low valuations, then the Middle East conflict instantly shattered profit expectations, shifting market focus from long-term dividends and governance to short-term inflation and survival.

This split reveals a harsh reality: reform-driven bull markets are built on relatively stable global macro assumptions. When the Gulf conflict prolongs, it exposes Korea’s vulnerabilities as resource-scarce export-dependent economy with overly concentrated industries.

In an open market, funds flowing in due to industry advantages or reform expectations can reverse during crises. When global risk aversion spikes and foreign investors hold large profits, liquid assets with the biggest gains are naturally the first to be sold off.

To some extent, this is an unavoidable volatility in a highly open market and a new challenge in expectations management.

Just look at Hong Kong stocks next door—despite a diverse industry structure and relatively advanced corporate governance—when turned into a “cash cow,” their declines are just as sharp.