South Korean shares sank more than 10% on Wednesday, wiping off $430 billion in value just this week, after the won currency hit a 17-year low on a widening Middle East war, prompting heavy selling in a market that had been the world’s hottest.
Israeli and U.S. forces pounded targets across Iran, prompting retaliatory attacks around the Gulf as the conflict spread to Lebanon, rattled global markets and sent oil prices sharply higher.
Growing risks of a drawn-out war in the Middle East have particular significance for net oil importing countries such as South Korea, which relies almost entirely on imports for its energy.
The market reaction has been telling as around 70% of the nation’s oil purchases come from the Middle East.
The benchmark KOSPI was down 592.78 points, or 10.23%, at 5,199.13 as of 0320 GMT, after triggering circuit breakers for the first time since August 2024 and a trading curb for the second straight session.
The index is on track to post the biggest daily drop since October 2008, if losses hold.
The punishing selloff has wiped off 634.1 trillion won ($429.01 billion) in market capitalisation over the past two days – the index had posted its biggest daily percentage drop since August 2024 on Tuesday with a 7.24% fall.
The sharp losses, as foreigners bailed out, marked an abrupt turn for a market that had more than doubled in value over the past year on a world-beating, artificial intelligence-driven rally.
“This looks more like a positioning unwind and risk reduction rather than a fundamental deterioration in earnings,” Tareck Horchani, with Maybank Securities in Singapore, said, adding that positioning had been crowded in the world’s hottest market.
“When oil spikes and FX volatility jumps, especially for oil-importing markets like Korea and Japan, global funds tend to de-risk quickly from the most liquid index heavyweights,” Horchani said.
The won briefly breached the 1,500 mark overnight to hit its weakest level since March 2009 at 1,505.8, before closing the session down 3.1% at 1,485.7. It was up 0.6% at 1,477.6 on Wednesday.
“The focus overnight was on South Korea and the KOSPI weakness linked to the country’s energy dependence on Gulf supply,” BNY Mellon economists said in a note.
Just last week, Bank of Korea Governor Rhee Chang-yong said the won was strengthening thanks to improving supply-demand conditions in the foreign exchange market. The currency had hit its strongest level since October 30, 2025.
“We will closely watch if won exchange rates and bond yields deviate excessively from domestic fundamentals even with external factors in consideration,” the Bank of Korea said in a statement soon after the market opened on Wednesday, as the central bank vowed to respond to herd-like behaviour.
Finance Minister Koo Yun-cheol also said authorities were watching the foreign exchange market closely.
“(Dollar-won) upside is now open for exchange rates with the 1,500 level breached,” a local currency trader said.
South Korean authorities have been rolling out measures to stabilise the currency market since late last year, with President Lee Jae Myung saying in rare comments in January that the won was expected to strengthen towards the 1,400 per dollar level after a month or two.
In the stock market, of the total 925 traded issues, only 16 shares advanced, while 908 declined. Chipmaker Samsung Electronics fell 9.7% and peer SK Hynix lost 7.2%, while Hyundai Motor dropped 13.1%.
Korean Air Lines fell more than 5%, after dropping 10.3% on Tuesday, the biggest since March 2020.
Foreigners were net sellers of local shares worth 1.1 trillion won, extending their selloff to a 10th straight session.
