Amid the fallout from a U.S. and Israeli invasion of Iran, the KOSPI plunged 18% over two days and then surged 10% in a single day on the 5th, showing extreme volatility. Analysts say volatility in Korea's stock market is excessive compared with major global markets.
Jeong Yong-taek, a researcher at IBK Securities, said in a report on the 6th that "given the sudden shock of war, it is a natural response for indicators in financial and foreign exchange markets to become more volatile," but added, "This sharp swing stems from a structural characteristic in which the domestic stock market is excessively concentrated in a small number of stocks."
Jeong noted that while the Korean market's daily swing neared 10%, the average daily move in U.S. stock indexes, a direct party to the conflict, was under 1%, suggesting domestic volatility is excessive by comparison.
Movements in macro variables back this up. He explained, "It is true that Korea relies on the Middle East for about 60% to 70% of its crude oil imports, but concerns from rising oil prices are generally reflected first in indicators such as bond yields or exchange rates." He added, "With rates and the currency still moving within their existing trend ranges, it is hard to explain the stock index's excessive volatility solely by the Middle East crisis's impact on economic fundamentals."
He then pointed to excessive concentration in certain stocks as the cause of the index's sharp swings. Samsung Electronics and SK hynix together account for about 40% of the KOSPI's market capitalization. By contrast, the top two stocks in the U.S. S&P 500 make up only the low-10% range.
Jeong interpreted this not as a simple market-structure issue but as a warning signal intertwined with the "K-shaped economy," a hallmark of the current cycle. He said, "The biggest feature of the current cycle is severe polarization, often called the 'K-shaped economy,'" adding, "In the recent process of revising growth higher, the contribution from semiconductors has expanded significantly." In fact, the growth contribution of semiconductors was analyzed to have risen from 24.4% to 34.7% in February.
Jeong said, "While domestic and overseas economies are seeing higher growth expectations thanks to large-scale investment centered on artificial intelligence (AI), the more concentration intensifies in certain industries and corporations, the more sensitive the economy can become to external shocks."
He continued, "As polarization deepens, the downside in a downturn can become larger, and the cooling of perceived economic conditions can appear more quickly," diagnosing that "the recent excessive stock volatility triggered by the Middle East crisis may be an early signal of such structural risks."