South Korea’s stock market volatility

South Korea’s stock market has fluctuated wildly in recent days, underscoring how the world’s best-performing stock market last year has become one of the most volatile.

Criterion cospi index It fell as much as 12% on Wednesday, its biggest single-day decline in history, before making a strong recovery in the next session, rising almost 10%, its best day since 2008. It was trading down more than 1% on Friday.

The blow comes as investors reassess the risks from an escalating war in the Middle East, which has sent oil prices soaring and shaken markets around the world, and the market is concentrated in a few stocks.

Experts said the global risk-aversion mood played an important role, but the Korean market’s concentration in two memory giants and its sensitivity to energy shocks made it particularly vulnerable to sharp fluctuations.

“When you look at the reaction of other exchanges, Korea is a bit of an outlier,” said Jason Hsu, CEO of Rayliant Global Advisors. He added that Kospi’s heavy concentration in a handful of technology stocks means market moves tend to be larger than in more diversified indexes.

“It’s natural that its variability would be very large,” he told CNBC.

SK Hynix is ​​up almost 45% this year, after skyrocketing 274% last year. Similarly, Samsung Electronics, which is up nearly 60% since the beginning of the year, is up 125% in 2025.

Both account for about a third of Kospi’s total market capitalization as of early November. Korean Capital Market Institute.

Analysts say this concentration tends to increase volatility: When the memory chip cycle is strong, the index can rally quickly, but when investors take profits or sentiment turns risk-averse, declines in these few heavyweight stocks can drag the entire market lower.

The Kospi Volatility Index rose 27% to a record high at the height of the sell-off on Wednesday. It has since fallen to about 8% on Thursday but remains at record highs.

Retail leverage amplifies volatility

According to experienced experts in the market, another factor strengthening the market’s movements is South Korea’s large retail investor base and active derivatives market.

“This is a lot of leveraged trading impacting the market,” said Daniel Yoo, global strategist at Yuanta Securities.

“We had a lot of margin calls on retail investors. And they abandoned it… And then [on Thursday] went up again. It has nothing to do with the basics.”

Retail investors have been among the biggest buyers of Korean stocks since the beginning of the year, often using margin accounts and leveraged exchange-traded funds. This means sharp market declines can quickly trigger forced selling when margin calls hit, Yoo said.

The biggest participants in the South Korean stock market on Thursday were retail investors, according to data from the Korea Exchange.

Individual traders sold 19.7 trillion won ($13.3 billion) worth of Kospi shares and bought about 21 trillion won; This made them the largest buyers in the market, facing a net purchase of approximately 1.3 trillion won.

Retail investors had the largest share of transactions on Kospi on Thursday, accounting for about 45% of the total turnover, compared to roughly 33% for foreign investors and 22% for institutions, according to data from the Korea Exchange on Thursday.

Adding to the turbulence is Korea’s sensitivity to energy prices. As a major importer of crude oil, the country is particularly vulnerable to disruptions in global supply.

“Although we have seen sales in major stock markets due to the impact of uncertainties in the Middle East, this situation is more pronounced in South Korea. [on Tuesday and Wednesday] “Given its relatively higher dependence on crude oil imports,” said Raisah Rasid, global market strategist at JPMorgan Asset Management.

Semiconductor cycle still supported

For now, market volatility may reflect an easing of the overheated rally, said KB Securities’ Kim.

“Given the scale of the leveraged position of Korean retail investors and the prolonged uncertainty expected from the Iran situation, it would be premature to urgently call for a V-shaped recovery,” he added.

But while semiconductor earnings remain strong and valuations have stabilized, other market watchers believe the fundamentals of South Korea’s stock market remain solid, particularly the semiconductor sector that dominates the index.

“The pullback appears to be momentary and more emotion-driven rather than fundamental at this stage,” said Kieron Poon, investment director of Asian equities at Aberdeen Investments.

He said memory prices, especially for Dynamic Random Access Memory (DRAM), have increased after a strong 2025 and are expected to continue growing in the first half of 2026, supporting earnings for Korean chipmakers.

JPMorgan’s Rasid echoed that view, saying long-term drivers for Korean stocks remain strong.

“While there are concerns about demand extinction and inventory hoarding, supply-demand dynamics in the memory chips space are likely to remain tight throughout this year and likely into next,” he said.