South Korea stocks crashed 18% in two days. Could it happen here?

South Korean stocks rapidly fell from grace following the US and Israeli strikes on Iran. But Wall Street would not see that as a harbinger for something that is to come back in the US

The benchmark Kospi Index tumbled greater than 12% Wednesday — its worst-ever single day of buying and selling. Korean stocks have plunged greater than 18% thus far this week, on monitor for his or her greatest weekly loss since 2008.

South Korea’s inventory market was darkish on Monday for a nationwide vacation. But a pointy selloff got here Tuesday when markets reopened Tuesday in the wake of the Mideast battle. Korea imports almost all its fossil fuels, together with oil and pure fuel, all of it introduced in by tanker. About 70% of Korea’s oil imports and as much as 30% of liquefied pure fuel comes from the Middle East, according to the US Energy Information Agency.

Both the US and Korean markets have been described as concentrated in a handful of stocks. But US traders are fast to level out that Korea’s focus is much better than even the US What’s extra, US indexes lately hadn’t seen dramatic good points as had their worldwide counterparts.

“It’s all about perspective,” stated Jay Woods, chief market strategist at Freedom Capital Markets.

Levels of focus

More than one-third of the Korean index is made up of solely Samsung Electronics and SK HynixLarry Tentarelli of the Blue Chip Trend Report famous. By comparability, the two largest stocks in the S&P 500 — Nvidia and Apple — account for 14% of the index, he stated.

Samsung Electronics has soared 216% in the previous 12 months. SK Hynix, a semiconductor maker, is up 356% over the previous yr, even together with its newest decline, leaving them each “extremely extended,” Tentarelli stated. If Nvidia and Apple had made such a run, the S&P 500 can be up greater than 40% yr thus far. Instead, the S&P 500 is little modified in 2026.

“Those numbers are definitely short term bubble numbers, which led to the sharp correction,” Tentarelli stated.

SK Hynix and Samsung Electronics each plunged by 10% or extra in Wednesday’s buying and selling in Seoul, at one level resulting in a brief suspension of buying and selling on the Korea Exchange, the nation’s inventory market.

Despite the US market being “very headline driven,” with geopolitical developments typically driving investor sentiment in the midst of the US-Iran struggle, Tentarelli stated any index volatility would pale subsequent to the Kospi’s drop this week.

A 12% one-day decline in the US market would really feel just like the “end of the world,” Woods stated. But due to the broad diversification in the US, along with NYSE and Nasdaq circuit breakerseach primarily based on the S&P 500, Woods stated he would not consider such a slide is probably going.

US market crashes are sometimes about breadth — and up to now, breadth has been held up, particularly contemplating the backdrop, Woods added.

Korea’s huge run

Woods additionally stated the Korean market was extra vulnerable to a significant correction following its outsized rally.

Despite this week’s turmoil, the Kospi remains to be up greater than 20% in 2026 alone, and 100% over the previous 12 months. By distinction, the S&P 500 is up a fraction in 2026 and 19% in comparison with a yr in the past.

“It is earth-shattering when you see a 12% drop in an index in one of the biggest countries in the world,” Woods stated. But, “to me, what we’re seeing in these foreign markets are people rushing for the exits because they know they have a good profit, and the selling is causing a bit of a capitulation.”

Korea is the 14th largest economic system in the world, according to the International Monetary Fundbigger than Australia, the Netherlands and Saudi Arabia.

Woods stated the Kospi’s transfer appears just like latest declines in valuable metals and Peru’s market, which noticed main declines after monster runs.

Woods acknowledged the US market has confronted vital drawdowns in latest years tied to the Covid pandemic, the runup in rates of interest and inflation, and President Donald Trump’s tariffs.

But he famous these occurred over longer durations than the Korea’s two-day shock. Mizuho’s buying and selling desk advised shoppers that Korean stocks entered a bear market — and it “only took” three days.

Retail merchants’ function

Part of the selloff can be defined by the prevalence of small traders in Korea.

The iShares MSCI South Korea ETF (EWY) “has gone from a retail darling to retail investors rushing for the exits,” VandaTrack analyst Viraj Patel wrote to shoppers.

The fund had seen a document, rolling one-month web circulation of $266 million from retail traders, eight-times the earlier excessive. The ETF noticed its highest-volume buying and selling day in historical past on Tuesday.

Speculation amongst merchants throughout the nation may additionally play a job. Korean traders have been piling into leveraged tradesbetting on the nation’s market, Bloomberg reported.