Seoul Stocks Plunge as Middle East Tensions Escalate

South Korean stocks tumbled more than 2% on Tuesday as tensions between Israel and Iran intensified following Iran's drone and missile attack on Israeli territory over the weekend. The benchmark Korea Composite Stock Price Index (KOSPI) plunged 60.8 points, or 2.28%, to close at 2,609.63, with major tech and chip stocks like Samsung Electronics and SK hynix leading the losses.

The sharp decline in Seoul shares came after Israel's army chief, General Herzi Halevi, warned that Iran's attack would be "met with a response," heightening fears of a wider regional conflict that could disrupt global oil supply. The Korean won also fell sharply against the U.S. dollar, reaching the 1,400-won level for the first time since November 2022.

Why this matters: The escalating tensions in the Middle East have raised concerns about the stability of global oil prices and the potential impact on South Korea's economy, which relies heavily on energy imports. A wider regional war could trigger a sharp rise in oil prices, adding to inflationary pressures and impacting economic growth.

Analysts warned that the market could experience increased volatility if the instability in the Middle East continues to widen. "The key for markets will be the extent of Israel's retaliation, as a wider regional war could trigger a sharp rise in oil prices," said Lee Kyung-min, an analyst at Daishin Securities.

The geopolitical tensions overshadowed mixed economic data from China, South Korea's largest trading partner. While China's GDP growth in the first quarter beat expectations at 5.3%, industrial production and retail sales came in below forecasts, raising concerns about the sustainability of the recovery.

Key Takeaways

• South Korean stocks tumbled over 2% due to Israel-Iran tensions.
• Korean won fell sharply against the US dollar, reaching 1,400-won level.
• Escalating Middle East tensions raise concerns about global oil prices and impact on South Korea.
• South Korea's finance ministry to take measures if market volatility grows excessively.
• Global markets fell amid uncertainty in the Middle East and Fed's interest rate policy.