On February 28, local time, the U.S. and Israel launched a massive airstrike against Iran, prompting Iranian missile retaliation and escalating tensions across the Middle East.
The KOSPI surged over 7% last week, settling above the 6,000-point mark, but analysts predict increased volatility in the South Korean stock market. As foreign investors sell and South Korean bargain hunters buy, the Iran crisis could rapidly alter the dynamics of the local securities market.
Foreign Sell-Off Met by Individual Buyers as KOSPI Stabilizes Above 6,000
The Korea Exchange reported that on February 27, the KOSPI index closed at 6,244.13, down 63.14 points (1.00%) from the previous day. Nvidia’s sharp decline influenced the market, ending a seven-day winning streak. However, the index briefly surpassed 6,300 points during the week, ultimately gaining 7.5% from February 23 to 27.
In terms of market dynamics, foreign investors sold heavily while individual investors absorbed most of the shares, supporting the index. Last week, foreigners net sold 11.864 trillion KRW (approximately 8.1 billion USD) worth of KOSPI shares. On February 27 alone, they sold 6.828 trillion KRW (about 4.7 billion USD), shattering the previous record for single-day net selling set on February 5.
Individual investors countered by absorbing the majority of shares sold by foreigners. They net purchased 5.988 trillion KRW (around 4.1 billion USD) in KOSPI shares over the week. Institutional investors also contributed with a net buy of 5.524 trillion KRW (about 3.7 billion USD), with financial investment firms accounting for a significant portion (7.935 trillion KRW, or roughly 5.4 billion USD) through aggressive exchange-traded fund (ETF) purchases.
Semiconductor Giants Dominate, Accounting for 40% of KOSPI’s Market Cap, Raising Volatility Concerns
Semiconductor and artificial intelligence (AI) related stocks drove the KOSPI higher. Samsung Electronics and SK Hynix surged by 14% and 12% respectively over the week, cementing their positions as market leaders. Hyundai Motor and LG Electronics also hit record highs, riding the wave of Nvidia’s physical AI momentum.
However, with the top two semiconductor stocks now representing nearly 40% of the KOSPI’s total market capitalization, their outsized influence raises the risk of market fluctuations due to external factors. On February 27, Nvidia’s 5% drop in New York trading triggered declines in Korean semiconductor and robotics-related stocks, pushing the KOSPI down by 2% during intraday trading.
U.S.-Iran Conflict and Other Wildcards Amplify KOSPI Volatility
This week, several external factors threaten to increase stock market volatility.
The U.S. and Israeli airstrikes on Iran on February 28 are expected to send shockwaves through global markets. If the conflict escalates into a full-scale war, analysts predict it could have a more significant impact on oil and financial markets than last June’s 12-day conflict. Amid existing concerns about AI profitability and U.S. tariff policy uncertainties, this development could become a major market headwind.
While the trajectory of the Iran situation remains uncertain, some analysts believe the KOSPI will maintain its resilience to external risks.
Jeong Hae-chang, a researcher at Daishin Securities, noted that potential uncertainties such as the U.S.-Iran situation and the confirmation schedule for Kevin Walsh as the next Federal Reserve Chair could increase volatility. However, he believes the KOSPI will show a different trend from past cycles, driven by upward revisions in semiconductor sector profit forecasts rather than liquidity alone, and is unlikely to reverse its march toward all-time highs.