From 6000 points to two “circuit breakers”: How did a missile in the Middle East halt South Korea’s semiconductor myth?

Author: David , Deep Tide TechFlow

As the conflict between the US and Iran continues, global capital markets are beginning to panic, with the South Korean stock market performing particularly poorly.

On March 3, the South Korean KOSPI index fell 7.24%, triggering trading restrictions. Samsung Electronics fell nearly 10%, and SK Hynix fell 11.5%.

Today, March 4th, the KOSPI fell over 8% intraday, triggering another circuit breaker and halting trading for 20 minutes. It closed down approximately 6% at 5440 points. Samsung fell another 5.1%, and SK Hynix fell another 3.9%.

In two trading days, with two circuit breakers triggered, the South Korean stock market plummeted from 6244 to 5440, a drop of nearly 13%. This is considered the worst consecutive plunge since 2008.

Just a week earlier, on February 25, the KOSPI index broke through 6,000 points, and the total market capitalization of the South Korean stock market rose to $3.76 trillion, more than France, ranking ninth in the world; Samsung and SK Hynix are still the most recommended stocks by various investment bloggers.

The Middle East is at war, and the world is falling, but why is South Korea falling the most?

Buy Korean stocks, buy storage

The bull market in the South Korean stock market over the past year is essentially the story of two companies.

Global AI training requires GPUs, which in turn require a type of high-bandwidth memory called HBM. This technology has extremely high production barriers, and only three companies worldwide can mass-produce it: SK Hynix, Samsung, and Micron.

SK Hynix alone captured more than half of the market share, while Samsung accounted for approximately 30%. Together, these two South Korean companies controlled over 80% of the global HBM market's production capacity.

Nvidia is their largest customer. Every H100 and every B200 memory chip shipped requires South Korean memory. In 2025, Nvidia's quarterly revenue reached $68.1 billion, a significant portion of which ultimately flowed into the pockets of SK Hynix and Samsung.

This is reflected in stock prices: in 2025, SK Hynix rose by 274%, and Samsung by 125%. The entire KOSPI index rose by 75.6%, with nearly half of the increase coming from these two stocks.

When you buy shares of the South Korean stock market, you are essentially buying memory chips.

This year is even more dramatic. In the first 20 days of February, South Korea's chip exports surged 134% year-on-year to $15.1 billion, accounting for more than one-third of total exports. Goldman Sachs predicts that South Korean stock market earnings will grow by 120% by 2026, with 88 percentage points coming from technology hardware.

In other words, if you remove the chip sector, the growth of the South Korean stock market is negligible.

It took 34 days for the KOSPI to rise from 5000 to 6000 points. During those 34 days, Nomura Securities raised its target price to 8000, JPMorgan Chase to 7500, and Goldman Sachs to 6400. Behind each of these numbers lies the same assumption:

There is no ceiling to the computing power requirements of AI, so there is no ceiling to the chip industry in South Korea.

With the strait closed, where does the electricity come from?

However, making chips requires electricity.

Where does South Korea get its electricity? Natural gas and coal each account for approximately 27%, while nuclear power accounts for 30%. South Korea doesn't produce its own natural gas and coal; it relies entirely on imports. South Korea is the world's third-largest importer of liquefied natural gas, after China and Japan.

On February 28, the US and Israel launched a joint airstrike on Iran. Following the confirmation of Khamenei's death, Iran immediately announced the closure of the Strait of Hormuz.

This strait is 33 kilometers wide at its narrowest point, and approximately one-fifth of the world's oil and a large quantity of liquefied natural gas pass through it. Qatar, one of the world's largest exporters of liquefied natural gas and a major gas source for South Korea, relies on this strait for its ships to depart from port.

When the Taiwan Strait is closed, oil prices surge first, followed by natural gas prices; the global energy market has always been interconnected.

Public information shows that natural gas prices in Europe have risen by nearly 50%, and in Asia by nearly 40%. Qatar Energy, a major supplier, suspended LNG production after its liquefied natural gas (LNG) facilities were attacked.

Image: Ship tracking data shows that the number of ships passing through the Strait of Hormuz decreased significantly on March 1st, local time. | Image source: SearchShip.com

Samsung and SK Hynix's chips don't appear out of thin air. From wafer to packaging, an HBM chip undergoes thousands of processes, each consuming electricity. Semiconductor manufacturing is one of the world's most energy-intensive industries.

In theory, a chain looks like this:

Nvidia placed an order, SK Hynix started production, the factory needs electricity, power generation needs natural gas, and the natural gas needs to cross the Strait of Hormuz, which is now closed.

South Korea closed its markets on March 1st, coinciding with their Women's Day holiday. While other markets were gripped by panic over the weekend, South Korean investors could only watch helplessly.

On Tuesday's opening, three days of panic coalesced into a single bearish candlestick. Samsung fell nearly 10%, and SK Hynix dropped 11.5%. Rising gas prices necessitate rising electricity prices, eroding chip profit margins and jeopardizing factory operating rates.

Wednesday saw even tougher moves. Iran shifted from threats to actions, beginning to actually disrupt shipping in the Straits of Hormuz. Brent crude oil surged above $82, and natural gas prices also soared. Samsung shares fell nearly 15% in two days, and SK Hynix shares fell 15%.

However, on the same South Korean stock exchange, Hanwha Aerospace rose nearly 20% on March 3, while LIG NEX1 rose 30% and hit its daily limit.

These two companies, the former manufactures fighter jets and missile engines, and the latter manufactures air defense systems and precision-guided weapons. With the Middle East in conflict, the entire world needs to replenish its stockpiles.

On one hand, chip manufacturing is declining, while on the other hand, missile manufacturing is rising.

Has the Korean discount disappeared?

The South Korean stock market has a nickname: "South Korean Discount".

This means that the same company is cheaper to list in South Korea than in the US or Japan. Samsung Electronics and TSMC are both chip giants with similar profitability, but TSMC's price-to-book ratio has consistently been two to three times that of Samsung.

You can think of it as the same dish being cheaper in Seoul than in New York.

Why? Because almost all of South Korea's major companies are controlled by chaebol families. Samsung, Hyundai, SK, and LG—the founding families use a pyramid-shaped cross-shareholding structure to control the entire group with a small number of shares.

They made money but didn't distribute dividends, didn't cancel treasury shares, and the board of directors was full of their own people; the independent directors hadn't cast a single dissenting vote in five years. Foreign investors took a look and felt that investing their money would just be working for someone else, so they gave up.

How long has this discount lasted? Over the past decade, the S&P 500 has risen by 179%, the Nikkei by 155%, India by 255%, and even Brazil by 167%.

KOSPI only rose by 35%.

In 2025, new President Lee Jae-myung will take office, reform the Commercial Code, force dividend payments, and mandate the cancellation of treasury stock. He will personally fly to the New York Stock Exchange to tell Wall Street that the Korean discount will become the Korean premium.

Meanwhile, AI has completely rewritten the valuation logic of Samsung and SK Hynix. With these two events colliding, foreign capital poured in, and KOSPI rose 75.6% in a year, ranking first globally.

More than 20 years of depreciation seems to have been wiped out in just one year.

However, the sharp declines over the past two days have revealed another issue: the previous discounts were due to poor corporate governance of South Korean listed companies, and governance is indeed improving.

But there's another layer of discount, hidden even deeper inside.

In South Korea, two stocks account for half of the stock market's gains, electricity generation relies on imported natural gas and coal, and the entire market is betting on one industry.

When something goes wrong in the world outside this industry, it triggers a series of circuit breakers. The vulnerabilities inherent in South Korea's geography and industrial structure are difficult to change simply by amending commercial law.

Foreign capital withdraws, retail investors take over.

On February 27, foreign investors net sold 6.8 trillion won in the South Korean market, setting a new single-day record. On March 3, they sold another 5.1 trillion won. In total, nearly 12 trillion won (equivalent to US$8.5 billion) was lost in less than two days—half of the inflow over six weeks.

Foreign investors' sentiment towards emerging markets has always been conditional. When conditions are favorable, they call you the core of the global AI supply chain; when conditions change, you become the most liquid and easiest to sell component in their portfolio.

The South Korean stock market is highly active with large trading volumes, and precisely because it's easy to sell, it's the first stock to be sold.

So who will take over?

On March 3rd, retail investors made net purchases of 5.8 trillion won, indicating that while foreign capital was fleeing, ordinary South Koreans were rushing in. Someone on the Seoul Forum commented that Samsung's price drop to this level was a once-in-a-decade occurrence.

The stock price fell another 6% the following day, and at one point during the day, it dropped 8%, triggering a circuit breaker. Those who rushed in on March 3rd suffered further losses within 24 hours. On March 4th, retail investors continued to buy on the dip, but they could no longer withstand the selling pressure from foreign investors.

The last time South Korean retail investors engaged in large-scale bottom-fishing was in August 2024 when the yen carry trade collapsed. They bought at the right time, recovering their losses within a month. Whether they can succeed this time may depend on a variable completely beyond their control:

When will the Strait of Hormuz reopen?

Emotions are more important than facts

It took 34 days for the KOSPI to go from 5,000 to 6,000, and two days to drop from 6,000 to 5,440.

Two circuit breakers in two days.

The energy chain is real; for example, natural gas needs to cross the Strait of Hormuz, and semiconductors rely on electricity generated from natural gas.

But a 13% drop in two days is no longer indicative of a natural gas price drop. A market where 75% of the gains are supported by just two stocks means everyone is crowding in the same direction, leaving only a limited exit.

After a significant price increase, panic ensues; whoever runs the fastest survives.

SK Hynix will most likely rebound. The demand for AI computing power is real, the HBM shortage is real, and Nvidia's orders for next quarter won't disappear just because of the war in the Middle East.

But these past two days have taught everyone one thing: the rebound was driven by fundamentals, while the drop was driven by sentiment. Fundamentals move slowly, while sentiment moves quickly. A 34-day gain can be wiped out in just two days.

Everyone who buys South Korean stocks feels they are buying into the benefits of AI chips.

But for South Korea, the chips are grown in an economy that relies on imported natural gas for power generation, sold to a customer who may impose tariffs at any time, and next door to a neighbor with nuclear weapons.

All research reports will tell you how much a stock is worth.

No research report will tell you what will happen in the world while you hold it.

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