South Korea leads rebound from market rout after Iran attack

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South Korea led a rebound in stocks on Thursday as investors clawed back some losses from a rout triggered by fears of a prolonged conflict in the Middle East.

The Kospi benchmark, which bore the brunt of an earlier sell-off in Asian markets, jumped 10 per cent after South Korea’s President Lee Jae Myung ordered the activation of a Won100tn ($68bn) market stabilisation fund.

Other markets in the region also climbed. Japan’s Topix rose 2 per cent, Taiwan’s Taiex jumped 2.6 per cent, Hong Kong’s Hang Seng index advanced 0.3 per cent and mainland China’s CSI 300 gained 1 per cent.

The recovery came a day after Asian markets plunged on concerns that the region’s oil and gas importers would be hit by a lengthy war in Iran. The Kospi was the worst affected, sliding 12 per cent in its biggest one-day drop.

The rout led to one of the first public government interventions in markets since the Iran war broke out. South Korea activated a stabilisation fund created during the coronavirus pandemic to buy stocks and bonds in periods of market turmoil.

“Substantial difficulties are expected in energy supply and the economy and industrial sectors as the world faces big uncertainty in financial markets,” Lee told a cabinet meeting on Thursday. “We need to actively respond to increasing volatility in financial markets including stocks and exchange rates.”

Before the attack on Iran at the weekend, South Korea’s stock market was the world’s best performer, rising nearly 50 per cent in the first two months of this year on enthusiasm over corporate governance reforms and the AI boom.

Samsung Electronics and SK Hynix, which produce memory chips for AI data centres, account for nearly 40 per cent of the Kospi. Their shares both rose 11 per cent on Thursday.

Investors said the index, which rose from the 2,500 range a year ago to a record of 6,307 on February 26, was due a correction.

“Korea had a massive run last year that continued this year. This saw some short-term leveraged money enter the market,” said Joshua Crabb, head of Asia-Pacific equities at Robeco. “The Middle East tensions acted as a catalyst for profit-taking, which was amplified by leveraged short-term investment.”

Crabb said he believed South Korea’s fundamentals were strong and saw the outlook as “favourable” provided the Iran conflict did not escalate.

South Korea is particularly sensitive to disruptions in energy supply, as nearly all its oil is imported and about 70 per cent comes from the Middle East.

“A more severe and prolonged US-Iran situation could adversely affect corporate earnings, but otherwise the narrative continues for IT and industrials,” said analysts at Morgan Stanley in a report this week.

An Hyungjin, chief executive of Seoul-based hedge fund Billionfold Asset Management, said he expected more volatility in the short-term.

“Investor desire for profit-taking and bargain-hunting seems mixed for now while the government intervention gave some psychological comfort,” he said.