South Korea Market's Worst Day In History; KOSPI Drops 13%, Steepest Than 9/11 Crash; Strait Of Hormuz Reason?

The South Korean market felt the wrath of bears in the cruelest manner on March 4th. Its mainboard KOSPI index nosedived nearly 13% to hit an intraday low of 5,059.45, triggering its biggest single-day fall in its history. KOSPI has also surpassed its worst single-day performance since 9/11. The reason is the US-Israel and Iran war, which is likely to impact oil market gravely.

KOSPI Index:

KOSPI index nosedived by 12.6% to hit an intraday low of 5,059.45 during the trading session of March 4. After the closing bell, the index stood at 5,093.54, down by 698.37 points or 12.06%.

This is the worst single-day performance in KOSPI's history. The benchmark has fallen by 12.02% in 1 day due to September 11, 2001 attacks on the US.

The performance was impacted due to extreme fears that global oil and gas trade would be severely impacted after Iran disrupted shipping on the Strait of Hormuz passage, which is one of the largest chokepoint for global trade.

Crude oil prices jumped as fear of inflationary pressures returns. The closure of Strait Of Hormuz will mean higher import costs which is negative risks for South Korea who depends on energy market and has exposure in trade through the chokepoint.

Losses were concentrated in large-cap exporters, including Samsung Electronics (-11.69%), SK hynix (-9.16%), Hyundai Motor (-16.05%), Kia Corp (-13.82%), LG Energy Solution (-11.32%), SK Square (-12.39%). The won also depreciated further, amplifying foreign outflows and imported inflation pressures, after overseas investors posted record net equity sales in February, as per Trading Economics.

KOSPI's downfall could also be attributed due to intense selloffs in Wall Street yesterday. The Dow Jones dropped by 1%, while the S&P 500 and Nasdaq Composite plummeted by around 1% each in the closing bell. They recovered heavy losses but closed on a sharp bearish tone.

South Korea Market Trading Halted:

Earlier in the day, when KOSPI passed the 8% decline, the South Korean financial authorities activated their 20-minute circuit breaker, which eventually halted trading on the exchange.

Kospi has recorded its third consecutive session decline this week.

Why US-Israel-Iran War Is The Reason?

As per the latest data, about 84% of the crude oil and condensate and 83% of the LNG were transited through Strait of Hormuz in 2024. Of this, countries like China, India, Japan, and South Korea accounted about 69% of the total crude flows through Hormuz.

Also among the top countries that import oil and gas through Hormuz, Korea is at the second rank followed by India and China at the third and fourth. Japan is at the first rank due to its higher share in trading oil and gas through Hormuz. These countries eventually become vulnerable to the shutdown of Hormuz.

As per Ponmudi R, CEO of Enrich Money, disruptions to trade flows through the Strait of Hormuz, driven by heightened security risks and rising insurance restrictions, have triggered a sharp surge in crude oil prices, amplifying inflation and supply concerns.

After the fall of supreme leader Ali Khamenei, the Iran's Revolutionary Guard Corps (IRGC) commander has announced the closing of Strait of Hormuz and any vessels passing through that waterway will be set on fire. As per reports, about five tankers have taken a hit and at least 150 ships are left stranded.

According to JP Morgan, due to the closing of Hormuz, losses could escalate to 3.8 million bpd around day 15 and 4.7 million bpd by ⁠day 18. Meanwhile, two Iragi oil officials told Reuters that Iraq will be forced to cut its oil production by more than 3 million bpd in a few days if oil tankers cannot move freely through the Strait of ⁠Hormuz and reach its loading ports.

Due to this, crude oil prices have surged sharply for the fourth consecutive session. US WTI crude futures is up by 2.2% to trade near $77 per barrel, while Brent crude oil futures is up by 2.4% to trade near $84 per barrel.