The impact of the Iran situation on global stock markets continues. This afternoon, South Korea's stock market plunged again, falling over 4%. At the close, the KOSPI index was down 4.26% to 5,052.46 points, marking a cumulative March decline of 19.1%, its largest monthly drop since October 2008. Among individual stocks, SK Hynix fell over 7%, and Samsung Electronics dropped more than 5%. Since its peak in February, the KOSPI index has retreated by 20%.
Persistent capital outflows from the South Korean stock market have put pressure on the won, which also fell sharply today. At the time of writing, the won depreciated by 1.18% against the US dollar to 1,535 won per dollar.
Observers note that the shockwaves from the Iran situation are severely impacting the South Korean stock market, revealing the fragility of a market largely supported by a few growth stocks. Currently, bullish sentiment towards South Korean equities is rapidly diminishing.
According to the latest reports, the South Korean government has proposed an additional stimulus budget of 26.2 trillion won to help cushion the impact of Middle East energy shocks and support economic growth.
Before the outbreak of conflict involving Iran, the South Korean stock market was one of the world's best performers. Now, as soaring oil prices hurt the prospects of this energy-dependent economy, its stocks are facing heavy selling. Simultaneously, cooling optimism about demand for memory chips is putting pressure on the two heavyweight stocks, SK Hynix and Samsung Electronics.
Since the beginning of March, the KOSPI index has fallen over 18%, making it the worst performer among 92 major indices tracked by Bloomberg. Bloomberg pointed out that as of March 30, the market capitalization of South Korean stocks has evaporated by $739 billion this month, heading for a record net outflow of foreign capital.
"At this stage, I would not venture into South Korean stocks, primarily due to the two major headwinds: the Iran situation and the memory chip cycle," said Matthew Haupt, a portfolio manager at Sydney-based Wilson Asset Management. He stated that rising uncertainty is significantly increasing the risk of trading South Korean stocks, especially given that related positions are already quite crowded.
According to market tracking data, DDR5 memory modules from several US retailers saw widespread price cuts this week, with single-kit prices dropping by up to $100. On Amazon, the price for a Corsair Vengeance 32GB DDR5-6400 kit is now approximately $379.99, down nearly 29% from a recent high of around $490. This wave of price cuts in the spot market for memory modules is widely attributed to the impact of a new TurboQuant memory compression algorithm launched by Google last week. This news quickly triggered a market reassessment and sparked concerns about falling memory demand. Overnight, US memory-related stocks fell sharply, with Micron Technology dropping nearly 10%.
During Tuesday's session, the KOSPI index at one point plunged 4%. Although the intraday loss narrowed to 1.6% at one stage, the market weakened again in the afternoon. The index is gradually approaching the critical 5,000-point level, reflecting a rapid shift in market sentiment.
For investors, the biggest challenge is the market's extreme volatility: sharp declines are often followed by significant rebounds, frequently triggering trading halts.
The KOSPI index's circuit breaker mechanism halts trading when losses reach 8%. This mechanism has already been triggered twice this month alone, accounting for a quarter of all such halts since the year 2000.
Meanwhile, the "Sidecar" mechanism, which pauses programmatic trading during the session, is triggered when KOSPI 200 futures fluctuate by 5% or more. This mechanism has been activated 10 times so far this year, compared to only 3 times in the entirety of the previous year.
Matthew Haupt noted that the multiple trading halts over the past few weeks indicate the presence of substantial short-term, high-frequency capital in the market, which significantly increases trading difficulty.
In response, the South Korean government is stepping in. Reports indicate that the Ministry of Economy and Finance announced on Tuesday that it has drafted a supplementary budget bill worth 26.2 trillion won (approximately $172.6 billion), planned for submission to the National Assembly for approval later that day.
The Ministry stated in a declaration that additional fiscal stimulus is necessary due to rising pressure on households caused by supply disruptions pushing up oil prices and the persistently heightened uncertainty stemming from Middle East conflicts.
The declaration stated that this extra spending will primarily be used to alleviate burdens on low-income families, small businesses, young people, and other vulnerable groups, while also assisting export companies facing increased transportation and logistics costs.
The Ministry of Economy and Finance said a significant portion of the supplementary budget, over 10 trillion won, will be used to support the government's temporary price cap policy on petroleum products, as well as to distribute energy vouchers and subsidies.
This new stimulus plan comes against the backdrop of surging oil prices following the disruption of the globally critical energy transport route, the Strait of Hormuz, since the escalation of Middle East conflicts in late February, further heightening concerns about stagflation risks.
As a major energy importer, South Korea relies heavily on oil and natural gas from the Middle East. Last week, the Organisation for Economic Co-operation and Development (OECD) downgraded its 2026 economic growth forecast for South Korea from 2.1% to 1.7%, while raising its inflation expectation from 1.8% to 2.7%.
The Ministry of Economy and Finance indicated that the supplementary budget will be financed using tax surpluses and national funds, with no new debt issuance planned. It also plans to use some fiscal revenue to repay existing government debt. The Ministry expects that after repaying some debt, the government's overall debt-to-GDP ratio will slightly decrease from the current 51.6% to 50.6%.
Separately, the Ministry of Trade, Industry and Energy stated on Tuesday that it has allocated 924.1 billion won (approximately $609 million) from the supplementary budget to address disruptions in energy and industrial supply chains caused by the Middle East crisis.
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