On the back of U.S. airstrikes on Iran, the KOSPI plunged for a second straight day, sliding nearly 20%. Investors are on high alert over whether this is a temporary bottom driven by fear or the starting point of a structural downturn. Experts say the current market drop is excessive relative to fundamentals, noting that prices are approaching a bottom reflecting psychological fear.
On the 5th, according to the Korea Exchange (KRX), the KOSPI closed at 5,093.54, down 698.37 points (12.06%) from the previous session. Following a drop of more than 7% the day before, the index again logged a double-digit decline. A circuit breaker was triggered as an intraday decline of more than 8% persisted for over one minute, halting transactions for 20 minutes.
In particular, panic selling poured out of large caps that had led the market, including semiconductors, autos, and securities. Samsung Electronics sank 11.7%, SK hynix 9%, Hyundai Motor 15%, and LG Energy Solution 11%, dragging the index lower. On the main board, decliners numbered 911, while advancers were 13 and unchanged issues 1, effectively reflecting broad-based selling.
Typically, sharp drops triggered by geopolitical shocks such as war often end as short-term events, so some had expected a rebound or flat trade on the day. But as steep losses continued for a second day, retail buying also slowed. Individuals, who net bought about 6 trillion won on the 27th and on the 3rd, were limited to a net purchase of 79.6 billion won on the day, showing a marked weakening in buying intensity.
Brokerages largely view the decline as an excessive correction driven by liquidity factors rather than damage to fundamentals. Noh Dong-gil, an analyst at Shinhan Investment & Securities, said, "The direct cause of the stock price drop is not corporate earnings but Middle East geopolitical risks stoking oil prices, which in turn expanded volatility in Asian foreign exchange markets and prompted foreign investors to readjust positions," adding, "Asset classes with high liquidity have become relatively vulnerable."
From a valuation perspective as well, the decline is seen as excessive. Jeong Hae-chang, an analyst at Daishin Securities, said, "The 5,059 low recorded on the 4th implies a price-earnings ratio (PER) of 8.06 times, a zone that served as a strong support for the KOSPI except during the 2008 financial crisis," diagnosing that "unless the Iran war is prolonged or the situation spreads into a recession or a system risk, a PER below 8 times is an excessive discount."
Given the steep drop, some expect that any technical rebound could also be large. Lee Eun-taek, an analyst at KB Securities, said, "If the usual daily swing is around 2–3%, in bull phases it often exceeds 4–5%," explaining, "Looking at correction cases after the dot-com bubble or the 'three lows' boom, pullbacks typically ranged from about 15–23%." Applying this to the current index suggests 4,850–5,400 on the KOSPI as a technical inflection zone.
Past cases are cited as reference points for the rebound timing. According to Daishin Securities, an analysis of 19 cases in which a circuit breaker was triggered on the KOSPI found that, except for Mar. 13, 2020, most rebounded the next trading day. On average, the index rose 9.9% after 32 trading days, recovering the day's loss, and around 60 trading days it posted a rebound of nearly 20%.
However, whether the blockade of the Strait of Hormuz—seen as a bellwether for financial markets—continues is viewed as a key variable. The Strait of Hormuz is a strategic chokepoint through which about 20% of the world's seaborne crude flows. If the blockade is prolonged, surging oil prices and inflationary pressure could weaken the real economy's overall strength, prompting advice to closely monitor related developments.