Many investment institutions remain optimistic about the long-term bull trend of the South Korean stock market. The past week witnessed an unprecedented roller-coaster ride for South Korean equities. Following the escalation of the Middle East situation, the South Korean stock market experienced historic plunges on the 3rd and 4th. Both the Korea Composite Stock Price Index (KOSPI) and the KOSDAQ index recorded their largest single-day declines in history on those two days. Subsequently, on the 5th and 6th, the market stabilized and rebounded. However, as of the latest update, the KOSPI had not yet recovered to its late-February historical high of 6000 points. Despite the geopolitical uncertainties, numerous investment firms continue to express confidence in the long-term upward trajectory of the South Korean market. For instance, after last week's sharp decline, Goldman Sachs' latest analysis suggests that the South Korean stock market is still poised to reach new highs after a period of consolidation. Similarly, Morgan Asset Management's global market strategist, Raisah Rasid, analyzed that the rebound in Korean stocks was expected as market risk appetite improves. To mitigate potential further impacts from the Middle East situation, South Korea's Ministry of Trade, Industry and Energy has issued a Level 1 alert and warned of strict crackdowns on market-disrupting practices such as oil price gouging. The Level 1 alert is the lowest tier in South Korea's four-level national resource security warning system. Government data indicates that South Korea's current oil reserves are sufficient for 208 days of consumption.
The market experienced two downward and one upward trading halts. After a market closure on the 2nd (Monday) for a public holiday, South Korean stocks faced consecutive 'Black Tuesday' and 'Black Wednesday' on the 3rd and 4th. Data from the Korea Exchange showed that on the 3rd, the KOSPI opened and began sliding from its 6000-point high amid large-scale foreign selling, triggering a 5-minute market-wide trading halt around midday. However, the circuit breaker failed to stem the decline. That day, the KOSPI closed below 6000 points for the first time, finishing at 5791.91, down 7.24% from the previous session. The decline continued on the 4th. Both the KOSPI and KOSDAQ indices plummeted over 8% during trading, triggering a Level 1 circuit breaker that suspended trading for 20 minutes. In South Korean capital markets, a Level 1 halt is initiated when an index falls more than 8% from the previous day's close and sustains that level for over one minute. Despite the halt, the market still closed lower that day. On the 5th, boosted by strong overnight US service sector data, signs of cooling inflation, and gains in tech giants, the South Korean stock market staged a strong rebound. The KOSPI opened higher and continued rallying, with gains expanding to 12%, which triggered a trading halt and a 5-minute suspension of program trading. This halt, unlike the previous two days, was caused by a rapid surge. On the 6th, both major South Korean indices extended their gains. Last year, the South Korean stock market was one of the world's best performers, with the KOSPI surging 76% annually, marking its best performance since 1999. Entering 2026, the market continued its upward momentum. After breaking through the 5000-point barrier for the first time on January 22nd, the KOSPI surpassed 6000 points on February 25th. By that date, the South Korean stock market had accumulated a 44% gain since the start of the year. Data compiled by Goldman Sachs shows that from its low on April 9, 2025, to its high at the end of February 2026, the KOSPI rallied 176%. Even from the interim low on November 21 last year, the gain was a substantial 65%. Against this backdrop, the recent correction of approximately 20% from the closing high on February 26th represents only about half of the recent gains and less than one-third (30%) of the full rally.
The underlying long-term bull structure remains intact. The artificial intelligence (AI) boom has undoubtedly been a key driver behind the South Korean stock market's rise since late last year. Goldman Sachs mentioned in a report late last year: "The conclusion of semiconductor inventory destocking and a new AI-driven demand cycle have fostered strong earnings recovery expectations for South Korean tech stocks. This is the core engine propelling the KOSPI index upward." Furthermore, a series of economic measures by the Lee Jae-myung administration have also injected confidence into the market. These include capital market reform policies, exemplified by the "Value-up Program," aimed at ending the so-called "Korea Discount" phenomenon. Last week, the Bank of Korea and the Ministry of Finance held an emergency meeting. To guard against further market volatility, South Korea's Financial Services Commission recommended actively implementing market stabilization plans. Participants at the meeting generally agreed that the likelihood of a "trend decline" in the South Korean market is low, given factors such as improved corporate earnings, expectations for active capital market policies, and continued inflows into the capital market. According to Goldman Sachs strategists, including Timothy Moe, this market pullback is a correction. After a period of consolidation, it is likely to rebound and set new records. Goldman Sachs has now raised its target for the KOSPI index from 6500 to 7000 points, citing continued strength in memory chip prices. Adjustments disclosed on the same day also showed that Goldman Sachs raised its 2026 earnings growth forecast for South Korea from 120% to 130%, marking the third upward revision for this metric this year. Of course, alongside the KOSPI's ascent, warnings about an AI bubble have persisted. A report from the Korea Institute of Finance indicated that foreign fund flows in the South Korean stock market could still experience significant volatility due to factors including concerns about an AI bubble. The institute's latest data shows that as of the end of December last year, foreign ownership accounted for 32.9% of the South Korean stock market's total capitalization, hitting a nearly six-year high. Herald van der Linde, Head of Asia Equity Strategy at HSBC, also cautioned: "The rapid rise in South Korean stocks has led to elevated valuations in some sectors, and investors should be wary of short-term technical correction risks."
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