KOSPI Plunges as Rising Middle East Tensions Rattle Markets

• South Korea’s KOSPI fell more than 11% after an 8% plunge triggered a circuit breaker halt.
• The benchmark index is heading toward its largest two-day decline since the global financial crisis.
• Samsung, SK Hynix, and Hyundai shares dropped sharply as leveraged positions were unwound.

Asian stock markets extended their losses for a third straight session as investors grew uneasy about the expanding conflict in the Middle East.

The regional sell-off pushed the MSCI Asia Pacific Index down as much as 3.4%, with South Korea emerging as the epicenter of the turmoil. The country’s benchmark KOSPI index suffered one of its sharpest declines in years, dropping more than 8% during trading and triggering an emergency circuit breaker before sliding as much as 11% after trading resumed.

The dramatic fall has placed the market on track for its steepest two-day drop since the 2008 global financial crisis.

From Market Darling to Sudden Crash

The sudden reversal marks a sharp change in sentiment for a market that had been one of the world’s top performers over the past year.

South Korean equities surged roughly 75% during 2025, driven largely by a global boom in artificial intelligence and semiconductor demand. The rally continued into 2026, with the KOSPI climbing another 50% earlier this year as global capital poured into the country’s technology sector.

Since last week’s peak, the index has fallen about 17%, with losses accelerating at the start of this week.

Tech Giants Lead the Sell-Off

The downturn has been driven by heavyweights that previously powered the rally.

Shares of major companies, including Samsung Electronics, SK Hynix, and Hyundai Motor, dropped. Forced liquidation of leveraged bets, particularly in semiconductor stocks, amplified the selling pressure.

Hedge funds heavily exposed to Samsung and SK Hynix were among those forced to reduce positions as volatility intensified.

Retail-Driven Market Adds to Volatility

South Korea’s market structure may have amplified the speed of the sell-off. Retail investors account for roughly 70% of trading activity in the country’s stock market, compared with about 20% in the United States. 

At the same time, South Korea hosts one of the world’s largest equity options markets by contract volume, even surpassing the United States in some periods. High levels of leverage tied to derivatives trading can turn ordinary corrections into rapid crashes when positions are unwound.

Authorities Prepare Market Stabilization Measures

With volatility rising, regulators have begun preparing contingency measures.

Lee Yoo-won, chairman of South Korea’s Financial Services Commission, instructed authorities to be ready to activate stabilization plans if needed. Among the tools available is a market stabilization fund worth more than 100 trillion won (around $68 billion), which was previously used during financial stress events such as the Lego credit crisis.

Related: When Will the US-Iran War Be Over? Insights from ChatGPT, Claude, and Grok