Korean stock market, staying calm is not easy.

South Korean stocks have recently been like the “Ten Rings Roller Coaster” at Chimelong.

At the end of February, conflicts erupted between the US, Israel, and Iran. Amid expectations of a quick escalation in the Middle East, global stock markets withstood the first trading day on March 2nd. However, South Korea’s stock market was closed all day due to a holiday.

When trading resumed on March 3rd, the outlook for a swift resolution in the Middle East had completely changed. The Strait of Hormuz, now under blockade, directly caused chaos in the global oil and gas markets. Meanwhile, the popular Korea Composite Stock Price Index (KOSPI) plunged into relentless decline.

On March 3rd, KOSPI briefly 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%, the largest ever.

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

But volatility did not stop there. This week, South Korean stocks continued to swing wildly, like a bipolar disorder patient, with a nearly 6% decline on Monday and a 5.35% rise on Tuesday. All this back-and-forth kept investors in the red, repeating the fundamental lesson of “volatility erosion” in investment.

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 hesitation and retail investor dominance.

Before these recent sharp rises and falls, the Korean stock market experienced an unprecedented upward cycle. From 2025 to late February 2026, KOSPI surged over 160%, making it the MVP of global markets. During this “bullish” run, it 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, paints a complex picture of the Korean stock market.

Night Before the Black Swan

From the curve, it’s clear that the upward trend in Korean stocks started after the tariff war bottomed out in April last year.

At that time, global markets trembled amid Trump’s latest tariff trade, and after a 7% decline in early April, KOSPI began to climb out of the bottom. Even brief corrections in November were seen as signals of “reverse gear” by enthusiastic market sentiment.

The revived enthusiasm for Korea intensified after 2026 began, with KOSPI nearly achieving a year’s worth of growth by January. Although volatility increased in February, the upward momentum accelerated.

On the first trading day of February, KOSPI retraced 5.26%, the largest pullback during this rally, but external conditions remained relatively stable. This “stress test” was quickly recovered amid oscillating gains. On February 25th, 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 leads to greater elasticity.

In terms of index composition, although KOSPI is 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 rise of KOSPI heavily depends on these two core stocks.

Before March, KOSPI was a pure AI mapping index. As long as the country was short of chips and increased capital expenditure, Samsung and SK Hynix held the key to the AI era’s “new oil.”

Whether it’s the soaring demand for high-end products like HBM (High Bandwidth Memory) needed for AI large models, or the supply contraction of traditional DRAM/NAND due to capacity expansion, storage has become the most popular wealth code in 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. By 2026, capacity was fully divided among AI giants, leaving even wealthy investors waiting for the 2027 supply.

However, when the world realized that the unstable Gulf would cut off stable oil supplies, the grand narrative of future growth was quickly replaced by immediate energy shortages. Especially for Korea, heavily dependent on Middle Eastern oil and gas, the FOMO story of “AI mapping king” was 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% for two consecutive days.

In fact, before this “black swan” event, both domestic and foreign capital in Korea had already diverged. In February, the daily trading volume reached 32.23 trillion won (about 1.492 trillion RMB), up 19% from January, setting new records for both index and trading volume.

From a technical analysis perspective, this volume surge and new high are classic “signal XX” indicators.

Since May last year, foreign investors have maintained a net buy stance overall, but after the index hit 6,000 points, 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 KOSPI hit a new intraday high, foreign net sales alone reached 7 trillion won (about 324 billion RMB).

Yet, these profits may not have anticipated that the unbalanced structure of the Korean stock market would pay such a heavy price due to the “epic fury” and “real commitments” from the Middle East.

Self-Help for the Underperformers

Such dramatic rises and falls naturally raise questions: what is the actual volatility of the Korean stock market?

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

Before 2025, KOSPI only experienced one major fluctuation in 2020, with a scenario similar to March this year—KOSPI was hammered down by heavy foreign selling, then retail investors entered to buy the dip, pushing the market higher again.

For years, Korea’s low volatility was coupled with an awkward “Korea discount.”

Over the past decade, Korea’s market price-to-book ratio generally hovered around 1. Occasionally, it would rise slightly but then revert to low levels. Only after the spectacular rally since last year did it reach a high of 2 in February this year.

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

The “Korea discount” can be seen as a collective negative assessment by global investors. The problem isn’t just the index’s skewed focus but also the governance models of large listed companies, which often don’t meet modern investor expectations.

Both Samsung and SK are typical family-controlled chaebols. Their governance is opaque, and often to avoid high inheritance and dividend taxes, they suppress stock prices, withhold dividends, or use cash for reckless diversification. All these factors have historically made Korean stocks notorious for being stingy to small shareholders.

Recent Korean presidents have all made “addressing the Korea discount” a key policy goal.

Former President Moon Jae-in encouraged institutional investors like the National Pension Service (NPS) to participate actively in corporate governance, aiming to curb chaebol cross-shareholdings and strengthen minority shareholder rights to improve valuation.

His successor, Yoon Suk-yeol, launched a “Corporate Value Enhancement Plan,” trying to revitalize the market through tax cuts, voluntary disclosure, and dividends. But he left office amid political turmoil in April 2025, and the “Korea premium” faded away.

In June 2025, current President Lee Jae-myung took office, calling for sweeping reforms of the capital market, including a goal to push KOSPI to 5,000 points.

As a seasoned retail investor (albeit with losses), Lee Jae-myung has repeatedly emphasized his frustration with unfair dealings by major shareholders, which he believes hurt ordinary investors.

After taking office, he implemented a series of reforms, including but not limited to: mandating the cancellation of controlling family’s treasury stocks; strengthening board accountability; reforming dividend taxes to encourage payouts; and promoting wealth redistribution from real estate speculation to financial assets.

Lee Jae-myung often highlights his own experience as a retail investor and claims that once his political career ends, he will return to stock trading.

Whether driven by top-down policy needs or personal preference, his enthusiasm for reform has helped push the index above 5,000 points. Despite recent volatility, KOSPI has risen over 100% within less than a year of his tenure.

Before the Gulf crisis, Lee Jae-myung’s market reforms drew significant attention. Bloomberg published a feature titled “How Korea’s President is Making the Stock Market the Best in the World,” calling him a hero among Korea’s 14 million retail investors.

Of course, this article was published on February 22, 2026, when ships still navigated the Strait of Hormuz normally, investors debated AI’s future based on Citrini’s “2028 Intelligent Crisis,” and oil prices hovered around $60, calm and steady.

Epilogue

If Lee Jae-myung’s reforms aimed to address “rules” and “distribution,” trying to fix the long-term low valuation, then the Middle East conflict instantly shattered the profit expectations as the denominator, pulling market focus sharply back to short-term inflation and survival.

This split reveals a harsh reality: reform bulls are built on relatively stable global macro assumptions. When the Gulf conflict’s timeline extends, it hits Korea’s vulnerabilities as resource-scarce export-dependent country with an overly concentrated economy.

In an open market, funds flowing in due to industry advantages or reform expectations can reverse out during crises. Especially when global risk aversion spikes, and foreign capital holds large profits, liquid assets with the greatest gains are naturally the first to be sold off by institutions.

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

Don’t believe it? Look at the neighboring Hong Kong stocks—industry structure is diverse, corporate governance is relatively advanced, but when turned into a “cash machine,” the decline is just as fierce.