Iranian conflict severely impacts the Korean stock market; once a hot favorite, the star market is no longer in vogue.

The shock from the Iran conflict is wreaking havoc on the South Korean stock market, showing that this rally—largely driven by a handful of growth stocks—has been far more fragile than bulls of Korean stocks may have hoped.

Before the outbreak of war in the Middle East, South Korea’s stock market was the best-performing market globally. Now, as surging oil prices have dented the outlook for this energy-dependent economy, South Korean shares have been hit by a wave of heavy selling. At the same time, optimism about demand for memory chips has started to cool, putting pressure on two major heavyweight stocks, SK Hynix and Samsung Electronics.

This month, the Kospi index has fallen by nearly 17% cumulatively, making it the worst performer among 92 major indexes tracked by Bloomberg. As of Monday, the market value of South Korean equities had evaporated by $739 billion since the beginning of the month, putting it on track to post a record high for net foreign outflows.

“I won’t touch South Korean stocks right now, because of two headwinds—an Iran war and memory chips,” Matthew Haupt, a fund manager at Wilson Asset Management in Sydney, said. “As a result, things are becoming more uncertain, which creates a lot of risk for trading the South Korean stock market, because the related positions are already quite crowded.”

On Tuesday, the Kospi index plunged as much as 4.1% at one point, before the decline narrowed to 1.6%. The index is getting increasingly close to slipping below the 5,000-point level backed by President Yoon Suk Yeol, highlighting how quickly market sentiment has shifted.

For investors, the most difficult part is the market’s sharp volatility: after an急 drop, there is a strong rebound, which has frequently triggered trading halts.

The Kospi circuit breaker will suspend trading after the index falls 8%. This month alone, this mechanism has already been triggered twice, accounting for one quarter of all such events since 2000. Meanwhile, the sidecar mechanism is triggered when Kospi stock index futures volatility reaches or exceeds 5%; this year it has already been triggered 10 times, compared with only three times for all of 2025.

Haupt said that multiple trading halts triggered in the past few weeks show that “there is a lot of fast in-and-out capital in the market, which makes trading difficult.”

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