Top Shot – Currency dealers monitor exchange rates in the foreign exchange dealing room of Hana Bank’s main branch in Seoul, February 2, 2026. South Korea’s benchmark index Kospi fell more than 5% on February 2, in line with the broader Asian market decline, as renewed concerns about the rise in AI-powered tech stocks raised concerns about a bubble in the sector. (Photo by Jung Young Jae/AFP via Getty Images)
Jung Young Jae | AFP | Getty Images
South Korea’s stock market has been volatile in recent days, highlighting how the world’s best-performing stock market last year is turning into one of the most volatile.
benchmark Kospi index The stock slumped as much as 12% on Wednesday, its biggest single-day drop ever, before rebounding strongly in the next session to rise nearly 10%, its best day since 2008. It fell more than 1% on Friday.
The whiplash situation comes as investors reassess risks from soaring oil prices and global market turmoil due to escalating Middle East wars, as well as market concentration in a few stocks.
While the global risk-off mood is a major factor, experts point out that the South Korean market is concentrated in two major memory companies and sensitive to energy shocks, making it particularly vulnerable to sudden fluctuations.
“If you look at the reaction of other stock markets, South Korea is a bit of an outlier,” said Jason Hsu, CEO of Rayliant Global Advisors. He added that the Kospi’s concentration in a small number of technology stocks means that market movements tend to be magnified compared to more diversified indexes.
YoY performance of Korean stocks
“There’s obviously a lot of volatility,” he told CNBC.
SK Hynix soared 274% last year and is up nearly 45% this year. Similarly, Samsung Electronics, which is up about 60% since the beginning of the year, has soared 125% in 2025.
The two companies accounted for about one-third of Kospi’s market capitalization as of early November, according to a report by the Korea Capital Market Research Institute.
That concentration tends to amplify volatility, and while the index can rise quickly during a strong memory chip cycle, declines in these few large-cap stocks could drag down the overall market as investors book profits or sentiment turns risk-off, analysts said.
The Kospi Volatility Index rose 27% to a record high on Wednesday as the sell-off reached its peak. It then fell to about 8% on Thursday, but remains at an all-time high.
Retail leverage increases volatility
Another factor amplifying the market movement is South Korea’s large retail investor base and active derivatives market, market veterans said.
“This is too many leveraged trades that are affecting the market,” said Daniel Yu, global strategist at Yuanta Securities.
“There were huge margin calls for retail investors. So they just dumped it…and then (on Thursday) it went up again. It has nothing to do with fundamentals.”
Individual investors have been the biggest buyers of South Korean stocks since the start of the year, often using margin accounts and leveraged exchange-traded funds (ETFs). In other words, if a margin call occurs, a sharp decline in the market could quickly trigger a forced sell, Yu said.
The biggest participants in the Korean stock market on Thursday were individual investors, according to data from the Korea Exchange.
Individual traders sold 19.7 trillion won ($13.3 billion) worth of Kospi stocks and bought about 21 trillion won, making them the biggest buyers in the market, with net purchases of about 1.3 trillion won.
According to Korea Exchange data on Thursday, retail investors accounted for the largest share of Kospi trading on Thursday, accounting for about 45% of the total trading volume, while foreign investors accounted for about 33% and institutional investors accounted for about 22%.
South Korea’s sensitivity to energy prices is also adding to the confusion. As a large importer of crude oil, the country is particularly vulnerable to global supply disruptions.
“We saw declines in major stock markets due to uncertainty in the Middle East, but the trend was more pronounced (Tuesday and Wednesday) in South Korea, which is relatively reliant on crude oil imports,” said Raisa Rashid, global market strategist at JPMorgan Asset Management.
Semiconductor cycle continues to support
KB Securities’ Kim said the market volatility so far may simply reflect an unwinding of an overheated rally.
“It would be premature to call for an immediate V-shaped recovery, given the size of South Korean retail investors’ leveraged positions and the expected long-term uncertainty due to the situation in Iran,” he added.
However, other market watchers believe the underlying fundamentals of the Korean stock market remain intact, especially in the semiconductor sector, which makes up the majority of the index, as semiconductor earnings remain strong and valuations remain stable.
“At this stage, this decline seems more out of necessity and driven by sentiment than by fundamentals,” said Kieron Poon, director of Asian equities at Aberdeen Investments.
He said memory prices, especially for dynamic random access memory (DRAM), have been rising since the strong year in 2025 and are expected to continue rising through the first half of 2026, supporting South Korean chipmakers’ profits.
JPMorgan’s Rashid expressed a similar view, saying the long-term drivers for Korean stocks remain strong.
“Despite concerns about demand destruction and inventory hoarding, the supply and demand dynamics in the memory chip space are likely to remain tight this year and possibly into next year,” he said.
