Middle East Tensions Send Seoul Stocks Plummeting

Escalating Middle East tensions rattle South Korean markets, prompting government response to mitigate economic impact and prepare for potential risks.

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Ebenezer Mensah
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Middle East Tensions Send Seoul Stocks Plummeting

Middle East Tensions Send Seoul Stocks Plummeting

Escalating tensions in the Middle East following Iran's extraordinary drone and missile attack on Israel over the weekend have sent shockwaves through global financial markets, with South Korean stocks taking a particularly hard hit. The benchmark Korea Composite Stock Price Index (KOSPI) plunged 60.80 points, or 2.28%, to close at 2,609.63 on Tuesday, marking its biggest daily percentage loss since January 17.

Major South Korean companies were heavily impacted by the geopolitical turmoil, with tech giants Samsung Electronics and SK Hynix experiencing significant declines. Battery makers and air carriers also saw their shares drop as investors grew increasingly wary of the potential economic fallout from the conflict. The Korean won weakened sharply against the U.S. dollar, hitting the 1,400-won level for the first time since November 2022.

Why this matters: The escalating tensions in the Middle East have far-reaching implications for the global economy, particularly for countries like South Korea that rely heavily on energy imports from the region. The instability has the potential to disrupt oil supplies and drive up prices, which could lead to inflationary pressures and slower economic growth.

In response to the market turmoil, South Korean President Yoon Suk Yeol ordered a preemptive response to any risk factors arising from the Middle East tensions. Yoon warned that a large increase in transport costs and oil prices would directly impact South Korea's economy and supply chain, given the country's dependence on the Strait of Hormuz for 60% of its oil imports.

The South Korean government held an emergency ministerial meeting to address the economic impact of the tensions and discuss policy responses. Key measures include establishing a pan-governmental emergency response system to prepare for risks in energy, supply chains, and financial markets, as well as efforts to achieve price stability and quickly execute the budget to stimulate domestic demand.

The finance ministry said it would take "instant and bold" measures if volatility in the financial market grows excessively, while foreign exchange authorities made a verbal intervention against the won's sharp decline. The government has set up a joint emergency response team to monitor the economic situation and financial market, and has extended the tax cut on fuel consumption by an additional two months through the end of June.

"The tensions in the Middle East have a direct impact on international oil prices, which in turn significantly impacts South Korea's economy and supply chain," President Yoon said during the emergency meeting. "The government remains open to all possibilities and prepares for stronger responses as military tensions remain high."

Key Takeaways

  • Escalating Middle East tensions sent shockwaves through global markets, hitting South Korean stocks hard.
  • Major South Korean companies like Samsung and SK Hynix saw significant declines, as did battery makers and airlines.
  • The Korean won weakened sharply against the US dollar, hitting the 1,400-won level for the first time since November 2022.
  • South Korea ordered a preemptive response to address risks from Middle East tensions, including economic and supply chain impacts.
  • The government set up emergency response teams and extended fuel tax cuts to mitigate the economic fallout.