South Korea, why the Seoul Stock Exchange is on a rollercoaster ride

Like on a rollercoaster. The excessive weight of stocks related to artificial intelligence (Ai) and the rising energy prices due to the war in Iran, have made the South Korean stock market go up and down in recent weeks. Not only that. What makes the movement even more violent is the fact that a massive amount of futures and options on the Kospi 200 index are traded in Seoul with a much higher retail participation than in Western markets.

After recording a rise that led the Kospi index to gain more than 121.1% in one year (data as at 11 March 2026), the South Korean market has recently also experienced sudden collapses (-7.24% on 3 March; -12.06% on the 4th; -5.96% on the 9th) and rebounds (+9.63% on 5 March; +5.35% on the 10th), even triggering circuit breakers (the mechanisms for the automatic suspension of trading in the event of an excessive fall or rise). The most impressive driver of the rise is technological in nature: the Korean Stock Exchange has become a true proxy (an indirect indicator) for artificial intelligence and, in particular, the market for advanced Hbm (high bandwidth memory).

Companies such as Samsung Electronics and Sk Hynix, which alone weigh disproportionately on the list (over 40%), benefited from huge capital flows, driven by global investments in data centres. Added to this was the effect of the government's 'corporate value-up programme'. 'This initiative,' explains Kévin Net, Head of Asia Division, La Financière de l'Echiquier, 'is aimed at improving governance and increasing shareholder returns, continues to support the market's structural story.

If Ai inflated the stock market's sails, the war in the Middle East suddenly deflated them. South Korea is a very strong importer of energy (oil and natural gas) and the semiconductor industry is extremely energy intensive. Threats to global supply chains and crude oil flare-ups resulted in an immediate risk of margin squeeze for Seoul's tech giants and a return of inflationary fears. When the geopolitical shock hit, the concentration of capital on Ai stocks (in the week before the crash alone, the iShares Msci South Korea Etf recorded record inflows of $1.2 billion) acted as a downside accelerator: too many investors were simultaneously trying to exit identical positions through a market that became illiquid.

In this context dominated by extreme volatility, how should an investor behave? 'The first rule,' answers Massimiliano Silla, an independent financial advisor, 'is prudence in exposure. Although the outlook remains interesting over the long term for those who believe in the technology megatrend, a massive entry in one lump sum is inadvisable. The optimal strategy to mitigate timing risk (market timing) is the use of a Pac (Capital Accumulation Plan), spreading purchases over time. For those who choose to invest through Etf," adds the independent consultant, "it is vital that they are Ucits and that they implement capping mechanisms (a maximum weight ceiling for a single security, usually between 20% and 35%). This technical device makes it possible to limit excessive exposure to just the two semiconductor giants, cushioning the impact of future, and probable, sector shocks. Exposure to the South Korean market,' Silla concludes, 'must in any case remain a satellite and minority component within a well-diversified financial plan.