From 6,000 points to two circuit breakers: a missile exposes South Korea's stock market vulnerability

Author: David, Deep Tide TechFlow

Original Title: From 6,000 Points to Two “Circuit Breaks”: The Korean Semiconductor Myth Halted by a Middle Eastern Missile

The ongoing US-Iran conflict has caused panic in global capital markets, with the Korean stock market performing particularly badly.

On March 3, the KOSPI fell 7.24%, triggering trading limits. Samsung Electronics dropped nearly 10%, SK Hynix fell 11.5%;
On March 4, today, the KOSPI plunged over 8% intraday, triggering another circuit breaker and pausing trading for 20 minutes. The close was down about 6%, at 5,440 points. Samsung fell another 5.1%, Hynix dropped 3.9%.

In two trading days, with two circuit breakers, the Korean stock market dropped from 6,244 to 5,440, nearly a 13% decline. This is the worst consecutive plunge since 2008.

Just a week ago, on February 25, the KOSPI broke through 6,000 points, with Korea’s total market capitalization reaching $3.76 trillion, more than France’s, ranking ninth globally; Samsung and Hynix remained the most favored stocks among various investment bloggers.

While conflicts in the Middle East cause global declines, why is Korea falling the hardest?

Buy Korean stocks, buy storage

The bullish market in Korea over the past year is essentially a story about two companies.

Global AI training requires GPUs, which need a type of high-bandwidth memory called HBM. Production barriers are extremely high; only three companies can mass-produce it worldwide: SK Hynix, Samsung, and Micron.

Among them, SK Hynix holds over half of the market share, Samsung about 30%. Together, these two Korean companies control over 80% of the global HBM capacity.

Nvidia is their biggest customer. Every H100 and B200 shipment relies on Korean memory. By 2025, Nvidia’s quarterly revenue will reach $68.1 billion, a significant portion of which ultimately flows into SK Hynix and Samsung.

This is reflected in their stock prices: SK Hynix surged 274% in 2025, Samsung rose 125%. The entire KOSPI index increased by 75.6%, nearly half of that gain contributed by these two stocks.

Basically, buying the Korean market is like buying storage chips.

This year, the growth is even more intense. In the first 20 days of February, Korea’s chip exports surged 134% year-over-year to $15.1 billion, accounting for over a third of total exports. Goldman Sachs predicts Korea’s stock market profits will grow 120% in 2026, with 88 percentage points coming from tech hardware.

In other words, removing chips, Korea’s stock market growth is minimal.

From 5,000 to 6,000 points, the KOSPI took 34 days. During this period, Nomura set a target of 8,000, JPMorgan 7,500, and Goldman Sachs adjusted to 6,400. Behind each figure is the same assumption:

AI’s computing power demand has no ceiling, so Korea’s chip industry has no ceiling.

Strait Blockade: Where Does the Power Come From?

But making chips requires electricity.

Where does Korea get its electricity? About 27% from natural gas, 27% from coal, and 30% from nuclear power. Natural gas and coal are imported—Korea doesn’t produce them domestically. Korea is the third-largest importer of liquefied natural gas (LNG), after China and Japan.

On February 28, the US and Israel launched a joint airstrike on Iran. With the death of Qasem Soleimani confirmed, Iran announced the closure of the Strait of Hormuz.

This strait is only 33 km wide at its narrowest point, through which about one-fifth of the world’s oil and a large amount of LNG pass. Qatar, one of the world’s largest LNG exporters and a major energy supplier to Korea, ships through this strait.

A blockade here causes oil prices to spike, natural gas prices to rise, and the global energy market to become interconnected.

Public reports show European natural gas prices rose nearly 50%, Asian natural gas prices increased nearly 40%. After Qatar Energy’s LNG facilities were attacked, the company suspended LNG production.

Chart: Ship tracking data shows a significant decrease in vessels passing through the Strait of Hormuz on March 1 local time｜Source: Ship Tracking Network

Samsung and Hynix’s chips aren’t produced out of thin air. A single HBM chip, from wafer to packaging, involves thousands of steps, each consuming power. Semiconductor manufacturing is one of the most energy-intensive industries worldwide.

Theoretically, the supply chain works like this:

Nvidia places an order, SK Hynix starts production, the factory needs power, power generation requires natural gas, which must pass through the Strait of Hormuz—now closed.

Korea’s markets closed on March 1, coinciding with their Samilje holiday. While other markets panicked and closed for the weekend, Korean investors could only watch.

When markets reopened on Tuesday, three days of panic formed a long bearish candle. Samsung fell nearly 10%, Hynix dropped 11.5%. Rising energy prices mean higher electricity costs, squeezing chip margins and reducing factory utilization.

Wednesday was even worse. Iran moved from threats to actual interference in shipping through the strait, Brent crude oil broke above $82, and natural gas prices surged. Samsung’s two-day decline totaled nearly 15%, Hynix fell 15%.

Meanwhile, in the same Korean stock exchange, Hanwha Aerospace rose nearly 20% on March 3, LIG Nex1 surged 30% to hit the daily limit.

These two companies: the former makes fighter jets and missile engines, the latter produces air defense systems and precision-guided weapons. As Middle East tensions escalate, the world rushes to replenish inventories.

On one side, chip makers are falling; on the other, missile manufacturers are rising.

Has Korea’s Discount Disappeared?

Korea’s stock market has a nickname: “Korean Discount.”

It means that the same company listed in Korea is cheaper than in the US or Japan. For example, Samsung Electronics and TSMC are both chip giants with similar profitability, but TSMC’s P/E ratio has long been two to three times that of Samsung.

You can think of it as the same dish being cheaper in Seoul than in New York.

Why? Because most large Korean conglomerates are controlled by family-controlled chaebols. Samsung, Hyundai, SK, LG—founding families use pyramid-style cross-shareholdings, controlling the entire group with minimal equity.

They don’t pay dividends when they profit, don’t cancel treasury shares, and their boards are filled with insiders who haven’t voted against anything in five years. Foreign investors see this and think investing is just working for others.

How long has this discount lasted? Over the past decade, the S&P 500 rose 179%, Nikkei 155%, India 255%, even Brazil 167%.
KOSPI only increased by 35%.

In 2025, new President Lee Jae-myung took office, reformed commercial laws, mandated dividends, and forced the cancellation of treasury shares, personally telling Wall Street in New York: “Korean discount will turn into Korean premium.”

At the same time, AI has completely rewritten the valuation logic for Samsung and Hynix. The convergence of these factors—foreign capital inflows and a 75.6% annual increase in KOSPI—made Korea’s stock market the world’s top performer.

What seemed like a decade-long discount was seemingly wiped out in a year.

But the two days of sharp decline reveal another issue: previously, the discount was due to poor corporate governance, which is indeed improving.

Yet, there’s another layer of discount hidden deeper.

In Korea, two stocks account for half of the market’s gains, and the entire market depends heavily on imported natural gas and coal for power, betting on a single industry.

When something goes wrong outside this industry, the market hits multiple circuit breakers. The vulnerabilities embedded in Korea’s geography and industrial structure are hard to fix just by changing laws.

Foreign Capital Withdraws, Retail Investors Take Over

On February 27, foreign investors net sold 6.8 trillion won ($5.8 billion), setting a single-day record. On March 3, they sold another 5.1 trillion won. In just two days, nearly 12 trillion won ($10.2 billion)—half of six weeks’ inflows—disappeared in less than two days.

Foreign investors’ sentiment toward emerging markets is always conditional. When conditions are good, they call you a core part of the global AI supply chain; when conditions change, you become the most liquid and easiest to sell.

Korea’s stock market is highly active and liquid, which makes it easy to sell, so it’s the first to be dumped.

But who’s buying?

On March 3, retail investors net bought 5.8 trillion won. With foreign investors fleeing, Korean retail investors stepped in. Someone at Seoul Forum said Samsung’s price drop was a once-in-a-decade event.

The next day, it fell another 6%, hitting an 8% intraday decline and triggering a circuit breaker. Those who bought in on March 3 lost a chunk within 24 hours. On March 4, retail investors continued to buy the dip, but they couldn’t withstand the selling pressure from foreigners.

The last time Korean retail investors heavily bought the dip was August 2024 during the yen carry trade collapse. They got it right then, with a one-month recovery. Whether they can do it again depends on an uncontrollable variable:

When will the Strait of Hormuz reopen?

Sentiment Matters More Than Facts

From 5,000 to 6,000 points, the KOSPI took 34 days; from 6,000 down to 5,440, it took two days.

Two days, two circuit breakers.

The energy supply chain is real—natural gas passing through Hormuz, chips relying on electricity from natural gas.

But a 13% drop in two days isn’t just about pricing natural gas anymore. The market’s 75% rally was driven by just two stocks; everyone was moving in the same direction, and exports are limited.

After a big run-up, panic sets in—who can sell fast enough survives.

SK Hynix is likely to rebound. The demand for AI computing power is real, the HBM shortage is real, Nvidia’s next quarter orders won’t vanish because of Middle Eastern conflicts.

But these two days show everyone one thing: a rebound depends on fundamentals, a fall depends on sentiment. Fundamentals move slowly; sentiment moves fast. The 34-day rally can be wiped out in just two days.

Everyone buying Korean stocks believes they’re riding the AI chip boom.

But for Korea, chips are built on an economy that relies on imported natural gas for power, selling to customers who could impose tariffs at any time, with a nuclear-armed neighbor nearby.

All reports will tell you how much a stock is worth.

No report will tell you what might happen in the world while you hold it.