The demand for chips has cooled due to the escalation of the Iran war, and the South Korean stock market has fallen from leading globally to frequent halts.

The Iran war has exposed the fragility of the Korean stock market's bullish trend, with the previous optimism towards the Korean stock market fading as the uptrend was only based on a few growth stocks. Prior to the escalation of the Middle East situation, the Korean stock market was the best-performing market globally. However, the surge in oil prices has clouded the outlook for the energy-dependent Korean economy, leading to a sharp sell-off in the Korean stock market. At the same time, market sentiment towards the demand for storage chips has also begun to cool. The Korea Composite Stock Price Index (KOSPI) has already fallen by 15% this month and is poised to become one of the worst-performing indices globally, with foreign investors facing record outflows of funds. As of last Friday, the total market capitalization of the Korean stock market this month has evaporated by $493 billion. KOSPI has experienced severe volatility, with circuit breakers being frequently triggered. As a net importer of energy, Korea's position has exacerbated the risks of inflation and tightening monetary policy. The country's reliance on the Middle East for over 70% of its crude oil imports makes it highly susceptible to oil price shocks. Authorities are considering expanding driving restrictions, highlighting growing concerns about rising energy costs. Bloomberg industry strategist Marvin Chen stated that the current prices have not fully reflected the impact of the war yet, and if oil prices remain high for longer periods, corporate profit growth momentum could further weaken. Additionally, concerns about the sustainability of chip demand have been raised with the recent introduction of Google's TurboQuant technology, which can improve the efficiency of artificial intelligence operations. This has increased market attention to radical spending in the field of artificial intelligence, putting pressure on SK Hynix and Samsung Electronics, the two companies accounting for nearly 40% of the KOSPI index. Matthew Haupt, fund manager at Sydney Wilson Asset Management, said, "I would not touch the Korean stock market right now, facing dual pressures of war and chip demand. Dealing with one war is already a headache, dealing with two at the same time is even more difficult. We are facing more uncertain outcomes, which increases the risk of trading KOSPI, given the overcrowded market." For investors, the most challenging aspect is the extreme market volatility: sharp falls followed by sharp rebounds, leading to unusual trading suspensions. The KOSPI circuit breaker, which halts trading after an 8% decline, has been activated twice this month, accounting for a quarter of such events since 2000. At the same time, the sidecar circuit breaker triggered when KOSPI futures fluctuate by 5% or more has been triggered ten times this year, while it is expected to be triggered only three times for the entire year. Haupt pointed out that the multiple trading suspensions in recent weeks show that "there is a lot of unstable capital in the market, making trading difficult." In terms of fund flows, the market presents extreme divisions, with institutional panic selling coexisting with retail investors' speculative bottom fishing. Faced with geopolitical uncertainty, foreign institutional investors and local mutual funds have chosen to sell decisively, putting pressure on blue-chip stocks such as Samsung Electronics and SK Hynix. However, Korean retail investors have shown remarkable resilience or adventurous spirits, with a net daily purchase amount reaching a historic record of about 70 trillion Korean won (approximately $46 billion) amid the index plunge. According to a Goldman Sachs report, the recent outflow of foreign funds has been mainly driven by the sale of stocks of these two chip manufacturers, with their foreign ownership levels falling to the lowest since 2022. Nevertheless, as of the end of last month, the epic rise of KOSPI has still led the index to rise by 25% so far this year. Some investors remain optimistic about the long-term outlook for the Korean stock market, citing strong performance of core storage technologies like high bandwidth memory, surging chip exports, and ongoing corporate governance reforms as supporting factors. Currently, many are inclined to adopt a wait-and-see approach until the impact of the supply chain disruptions caused by the Middle East conflict becomes clearer. Gerald Gan, Chief Investment Officer at Reed Capital Partners, said, "If the war continues for another month or two, I will at least wait until the end of this year or early next year to reassess the Korean stock market." He added that he prefers to hold cash and buy gold. Macro-level pressures have further amplified the market's woes, with the sharp depreciation of the Korean won becoming another Damocles' sword hanging over investors. As a result of the surge in demand for safe-haven U.S. dollars, the exchange rate of the Korean won against the U.S. dollar has approached the key psychological threshold of 1530, leading to a significant decline in the attractiveness of assets denominated in the local currency. Meanwhile, the personnel changes at the Bank of Korea have added uncertainty to the market, as the nominee for the new governor, Shin Hyun-song, is known for his hawkish stance, with the market generally expecting him to prioritize exchange rate stability over boosting the stock market. Faced with the triple threats of war clouds, currency depreciation, and rate hike expectations, the trading environment of the Korean stock market has shifted from "hot" to "treacherous".