'Rollercoaster KOSPI' Surges on Prospects of US-Iran Ceasefire

On the morning of the 5th, when the KOSPI surged sharply in early trading triggering a buy-side car, an employee at the Seoul Hana Bank Headquarters dealing room is monitoring the stock market and exchange rates. On that day, the KOSPI opened at 5,250.92, up 157.38 points (3.09%) from the previous day, the won/dollar exchange rate fell 12.2 won to 1,464.0 won, and the KOSDAQ started the session at 1,023.84, up 45.40 points (4.64%). March 5, 2026 Photo by Cho Yongjun

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The Korean stock market, which had plummeted following the war between the United States and Iran, has succeeded in making a sharp rebound. The possibility of ceasefire negotiations with Iran being raised in the US, coupled with a slowdown in the surge of international oil prices, has revived buying sentiment. It is also a positive sign that foreign investors, who had triggered the sharp fall in the KOSPI by selling Korean stocks for nine consecutive trading days, have now turned net buyers for the second straight day.

On March 5, the KOSPI opened at 5,250.92, up 3.09% from the previous session. The index climbed further during the session, soaring 12.21% to an intraday high of 5,715.30. Similarly, the KOSDAQ started at 1,023.84, up 4.64% from the previous day, and shot up to 1,091.98, marking an 11.60% gain.

With the sharp surge in the stock market, both exchanges triggered the buy-sidecar (temporary suspension of program buy orders). For the KOSPI, this was the first buy-sidecar activation in a month, since March 3. For the KOSDAQ, it was the first since February 19. The previous day, both the KOSPI and KOSDAQ had activated sell-sidecars due to a steep decline, but the situation reversed in just one day.

Overnight, the possibility of a ceasefire with Iran was discussed in the US, while the rise in international oil prices slowed, positively impacting the Korean stock market. On March 4 (local time), the Dow Jones Industrial Average closed at 48,739.41, up 0.49% from the previous session on the New York Stock Exchange. The tech-heavy Nasdaq Composite Index also jumped 1.29% to 22,807.48.

The New York Times reported that the day after US and Israeli airstrikes, Iranian intelligence authorities, through a third country, proposed negotiations to the US Central Intelligence Agency (CIA) to end the conflict. Hopes that the war could end early have revived risk appetite. It is also positive that the US government has repeatedly sent messages of oil price stability, and international oil prices, which had soared for two consecutive days, have now paused for breath.

The main driving force behind the rebound in the Korean stock market today is foreign investors. From February 13 to March 3, foreign investors had been net sellers of KOSPI stocks for nine consecutive trading days, leading the market decline. The net amount sold by foreigners on the KOSPI during those nine days reached as much as 19 trillion won. Individuals bought a net 18 trillion won, but this was not enough to prevent the sharp fall in the index. However, on the previous day, foreigners turned net buyers with about 362 billion won on the KOSPI, and as of 9:42 a.m. today, they had already recorded a net purchase of 720 billion won on the KOSPI alone.

By stock, large-cap stocks such as Samsung Electronics (up 13.76%), SK hynix (up 14.25%), Hyundai Motor (up 12.18%), and Doosan Enerbility (up 13.40%) showed particularly strong gains.

Despite the extreme volatility, there are forecasts that the upward trend could continue if the war ends early, given the improvement in KOSPI earnings. Seo Sangyeong, Managing Director at Mirae Asset Securities Research Center, explained, "With reports emerging of US-Iran negotiations, we are seeing a strong rebound as the market tries to recover previous losses." He added, "The current 12-month forward price-to-earnings ratio (PER) for the KOSPI is at 9.3 times, significantly below the historical average of 10.8 times, indicating an oversold zone. Considering that memory semiconductor prices remain strong and expectations for first-quarter earnings are alive, if the Iran conflict stays within a controllable range, the index could rebound sharply."

Kim Byungyeon, Chief Investment Strategist at NH Investment & Securities, predicted, "Unless there is confirmation of a decline in semiconductor prices or corporate earnings, it is highly likely that the KOSPI will return to a path reflecting an upward trend."

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Although the Korean stock market has stopped its plunge and succeeded in rebounding, the steep declines up to the previous day have resulted in a series of records of infamy. On the previous day, the KOSPI plummeted 12.06% and the KOSDAQ fell 14%-both marking the largest single-day declines in the history of the Korean stock market. The previous record for the KOSPI was a 12.02% drop on September 12, 2001. At that time, the aftermath of the '9/11 terrorist attack' caused a sharp drop in the US stock market, which, in turn, rattled the Korean market. Up until now, the record for the steepest KOSDAQ drop was 11.71% on March 19, 2020, during the COVID-19 pandemic.

As the stock market repeated sharp rises and falls, the volatility index also hit an all-time high. According to the Korea Exchange, the previous day, the KOSPI200 Volatility Index (VKOSPI) closed at 80.37, up 27.61% from the prior session. This far exceeded the previous record of 69.24 set on March 19, 2020, during the COVID-19 period. At one point during the session, it rose to 80.85, breaking the intraday all-time high as well. The VKOSPI, also known as the 'Korean Fear Index,' measures the expected future volatility of the KOSPI200 Index using option prices. Typically, the volatility index spikes when the KOSPI index plunges.

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The KOSPI's decline due to the war was greater than that of any other major country. From the start of the war on February 28 until March 3 and 4, the KOSPI tumbled 18.4% in just two days, and the KOSDAQ plunged 17.9%. By comparison, during the same period, the US Nasdaq rose 0.6% and the Dow fell only 0.5%. The Japanese stock market dropped 7.8%, and Taiwan's market fell 7.3%.

Several factors have been cited for why South Korea's market fell so much more than others: the Korean stock market had risen the most globally this year, making a deeper adjustment inevitable, and the Korean economy is more sensitive to oil price fluctuations than any other country. Han Jiyoung, researcher at Kiwoom Securities, analyzed, "While other major stock markets such as the Nasdaq fell only 2.5% from the beginning of the year through February, the KOSPI had soared 48%. As the Middle East crisis coincided with these gains, the Korean market fell much more sharply."

Korea, with over 70% of its oil imports coming from the Middle East, faced significant concerns over the impact of a potential blockade of the Strait of Hormuz. Seo Sangyeong, Managing Director at Mirae Asset Securities, explained, "The Korean stock market recorded an excessive drop compared to global markets due to Middle Eastern risks, which account for 71% of Korea's energy supply, and concerns over a blockade of the Strait of Hormuz. In addition, uncertainties in the artificial intelligence (AI) and memory semiconductor sectors last week triggered further foreign investor sell-offs." The rise in oil prices is immediately reflected in higher logistics costs and, indirectly, in increased manufacturing costs, which eventually push up overall prices. This inevitably burdens both companies and households.

Meanwhile, concerns over forced liquidation due to margin calls have also surged as the index plummeted. According to the Korea Financial Investment Association, as of March 3, outstanding margin loans stood at 32.804 trillion won, marking an all-time high. This amount has jumped by about 5.5 trillion won since the end of last year, when it was 27.2865 trillion won. Margin loans refer to money borrowed by individual investors from securities firms to purchase stocks, with the outstanding amount indicating what has not yet been repaid.

Outstanding amounts from failed settlement trades also reached nearly a yearly high at 1.0606 trillion won as of March 3. This figure refers to money that individual investors have yet to repay to securities firms after buying stocks through unsettled trades. This year, the actual amount of forced liquidations per day averaged 11.6 billion won, a sharp rise from last year's daily average of 7.1 billion won.

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