To The Moon

South Korea’s stock market remains under pressure. The KOSPI index has fallen to around 5,052, dropping 4.3% in a single day. Over the past month, it has declined nearly 19%, marking the largest monthly drop since October 2008, and has pulled back more than 20% from its February high.

From the perspective of daily performance, Korea-related ETFs broadly came under pressure. Among broad-based products, $韩国ETF-iShares MSCI(EWY)$ and $Franklin FTSE South Korea ETF(FLKR)$ both fell about 3.8%, largely reflecting the decline of the overall market. The actively managed $Matthews Korea Active ETF(MKOR)$ dropped a smaller 3.13%, showing relative resilience. The defense-themed $PLUS Korea Defense Industry Index ETF(KDEF)$ also declined by 3.68%, indicating that defensive sectors did not move independently higher. Leveraged products saw more pronounced volatility, with the 3x long Korea ETF $Direxion Daily MSCI South Korea Bull 3x Shares(KORU)$ plunging 11.27% in a single day, amplifying the downside of the index.

At the sector level, electrical and electronic equipment led the decline, with semiconductor heavyweights acting as the main drag. Samsung Electronics fell 5.2% in a single day, while SK Hynix dropped even more. Given their large index weight, both exerted concentrated pressure on the market. Meanwhile, aviation and industrial-chain companies also weakened in tandem, with some stocks falling more than 20% in a single day, as panic spread across sectors.

Over the past 24 hours, tensions in the Middle East escalated again. On March 30, the U.S. signaled a tougher stance, stating that further action could be taken against Iran’s energy facilities if negotiations fail, while pointing to early April as a key time window. Market concerns over the security of shipping through the Strait of Hormuz have intensified. This route accounts for roughly a quarter of global seaborne oil trade, and any disruption would directly impact energy supply.

As a result, oil prices continued to rise. On March 31, WTI crude broke above $100 per barrel and at one point climbed past $106, reflecting rapid short-term gains. The sharp increase in energy prices has not only pushed up inflation expectations but also squeezed manufacturing profit margins, leading to a decline in risk appetite and putting pressure on Asian equities.

The impact is now spreading through industrial supply chains. Naphtha supply has tightened due to transportation disruptions, and South Korea’s high dependence on the Middle East has forced petrochemical firms to cut or halt production. The effects are extending to industries such as autos and semiconductors, where raw materials and intermediate goods are being constrained, placing manufacturing under dual pressure from rising costs and supply shortages.

At the same time, although demand for AI chips remains strong and semiconductor output had surged, rising energy costs are beginning to erode that support. Production of electronic components and automobiles has already declined, signaling growing divergence within the industrial sector and weakening expectations for sustained earnings growth. Market capitalizations of companies such as Hyundai Motor and HD Hyundai Heavy Industries have fallen by 30% and 20.4% respectively this month.

In response, the South Korean government has introduced a supplementary budget of about 26.2 trillion won to reduce fuel costs, stabilize supply chains, and restrict naphtha exports to secure domestic supply, while also increasing support for businesses and households. However, these measures mainly serve as a buffer and are unlikely to fully offset external shocks in the short term.

Sharp declines are often followed by technical rebounds, but the market is currently still dominated by oil prices and geopolitical developments. If Middle East risks continue to escalate, volatility may remain elevated. If tensions ease, there could be room for a rebound from oversold levels.