On Wednesday, South Korea’s Kospi experienced its most significant single-day drop, continuing a pronounced sell-off from the prior session, as a wider downturn in Asian markets unfolded, driven by deteriorating investor sentiment due to the intensifying conflict in the Middle East. On Wednesday, trading for the Kospi index was temporarily suspended by the Korea Exchange. A circuit breaker was triggered on the Kosdaq, resulting in a closure 14% lower at 978.44. The Kospi index concluded the trading day down 12.1% at 5,093.54, with major players SK Hynix and Samsung Electronics experiencing declines of approximately 10% and nearly 12%, respectively. The South Korean market experienced significant growth last year, climbing over 75%, and continued to build on those gains into the new year, with the Kospi reaching new peaks driven by semiconductor giants benefiting from robust demand for memory chips. “The decline in the KOSPI can broadly be attributable to the single-name concentration that we see in the Korean markets,” stated Lorraine Tan.

Data indicates that memory leaders Samsung and SK Hynix account for nearly 50% of the index. “We believe that the decline in share prices is partially attributable to profit taking following a robust rally in a risk-averse climate, but it also suggests increasing apprehension regarding the potential deceleration in AI datacenter adoption, given its considerably elevated energy costs compared to conventional data centers,” Tan stated. Furthermore, the stock market in South Korea exhibits a notable sensitivity to fluctuations in oil prices, indicating that geopolitical disturbances in the Middle East often result in short-term volatility, according to Daniel Yoo. Korea, as a significant oil importer, faces vulnerabilities in its manufacturing-centric economy due to escalating energy costs. Such increases can exert pressure on industrial and export-driven sectors during periods of crude price surges. Yoo indicated that the recent decline in the Kospi ought to be interpreted as a correction following a robust rally, rather than a fundamental alteration in the market’s perspective. He further noted that stability is expected to resume once oil prices stabilize. South Korea’s net oil imports constitute 2.7% of its gross domestic product, with Nomura identifying it as one of the most susceptible to current account pressures.

Japan’s Nikkei 225 experienced a decline of 3.61%, settling at 54,245.54, while the Topix fell by 3.67%, reaching 3,633.67. Investors in the region will be closely monitoring an annual parliamentary meeting convened by China’s policymakers that commences later in the day. The assembly, referred to as the “Two Sessions,” comprises a consultative congress that is set to commence later today, alongside a National People’s Congress scheduled to open on Thursday. Chinese Premier Li Qiang is poised to unveil a range of economic targets at the NPC, which were predominantly established during a meeting in December. Australia’s benchmark index experienced a decline of 1.94%, closing at 8,901.2. The Hong Kong Hang Seng index experienced a decline of more than 2.28%, whereas the mainland CSI 300 fell by 1.14% to 4,602.62.

In February, China’s factory activity experienced a decline as manufacturers halted production and cargo shipments in observance of an extended holiday, according to an official survey released on Wednesday. The official manufacturing purchasing managers index declined to 49 in February, as reported by the National Bureau of Statistics, falling short of the forecasted 49.1. Oil prices continued to rise, with U.S. crude futures increasing by 2.8% to $76.65, while Brent experienced a 3.03% uptick to $83.86 per barrel, driven by an escalating conflict and Iran’s efforts to close the Strait of Hormuz.