South Korea’s won weakened beyond a key psychological barrier for the first time in 17 years, sending the stock market sharply lower again on Wednesday, as a widening war in the Middle East raised concerns for the world’s fourth-largest oil importer.
Israeli and US forces struck targets across Iran, prompting Iranian retaliatory attacks across the Gulf as the conflict spread to Lebanon, rattling global markets and sharply raising oil prices.
The growing risks of a prolonged war in the Middle East are of particular importance for net oil-importing countries like South Korea, which relies almost entirely on imports for its energy.
The market reaction has been telling, as around 70% of the country’s oil purchases come from the Middle East.
The won briefly surpassed the 1,500 mark overnight to hit its weakest level since March 2009 at 1,505.8, before closing the session down 3.1% at 1,485.7. It was up 0.3% at 1,481.5 at 0226 GMT on Wednesday.
“Attention focused overnight on South Korea and KOSPI weakness linked to the country’s energy dependence on Gulf supplies,” BNY Mellon economists said in a note.
The KOSPI benchmark index fell more than 8% to trigger circuit breakers for the first time since August 2024, after a restriction on sidecar trading was triggered early in the session for the second day in a row.
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The harsh sell-off wiped out 562.4 trillion won ($379.97 billion) in market capitalization in the past two days; The index had recorded its largest daily percentage drop since August 2024 on Tuesday, with a drop of 7.24%.
The steep losses, as foreigners bailed out, marked an abrupt turn for a market that had soared in a global rally fueled by artificial intelligence.
“They are working both ways. Exchange rates are rising because foreigners are selling stocks, and rising exchange rates amid risk-averse sentiment are again causing foreign capital outflows,” said Lee Sung-hoon, an analyst at Kiwoom Securities.
Last week, Bank of Korea Governor Rhee Chang-yong said the won was strengthening thanks to improving supply and demand conditions in the foreign exchange market following policy efforts, although it was too early to feel relieved as the currency hit the strongest level since Oct. 30, 2025 at 1,419.4.
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“We will closely monitor whether won exchange rates and bond yields deviate excessively from domestic fundamentals, even taking into account external factors,” the Bank of Korea said in a statement shortly after the market opened on Wednesday, as the central bank vowed to respond to herding behavior.
“There is now upside potential for exchange rates with the 1,500 level breached,” said a local currency trader, adding that there was greater caution in the market over a burst of dollar buying after heavy foreign equity selling last month.
South Korean authorities have been implementing measures to stabilize the currency market since late last year, and President Lee Jae Myung said in rare comments in January that the won was expected to strengthen toward the 1,400 level after a month or two.
In early trading on Wednesday, of the total 925 issues traded, only 30 shares advanced, while 889 fell. Index heavyweights Samsung Electronics and Hyundai Motor fell 2.20% and 3.53%, respectively.
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Foreigners were net sellers of stocks worth 370 billion won ($250.46 million), extending their selloff to the 10th consecutive session.
