South Korea’s stock market has swung wildly in recent days, underscoring how the world’s best-performing stock market last year is becoming its most volatile.

The reference point kospi index It plummeted as much as 12% on Wednesday, marking its biggest single-day drop on record, before experiencing a powerful rebound the following session, down nearly 10%, marking its best day since 2008. It was trading more than 1% lower on Friday.

The shakeup comes as investors reassess the risks of the escalating war in the Middle East, which has sent oil prices soaring and rattled markets globally, and market concentration in a few stocks.

While global risk-off sentiment has played a role, experts said the Korean market’s concentration on two memory giants and its sensitivity to energy shocks have made it particularly vulnerable to wild swings.

“Korea is an outlier, if you look at the reaction of other stock markets,” said Jason Hsu, chief executive of Rayliant Global Advisors. He added that the Kospi’s heavy concentration on a handful of technology stocks means that market movements tend to be magnified relative to more diversified indices.

“It’s natural that its volatility is enormous,” he told CNBC.

SK Hynix is ​​up almost 45% this year, after soaring 274% last year. Similarly, Samsung Electronics, which is up around 60% since the beginning of the year, is up 125% in 2025.

Both account for about a third of Kospi’s total market capitalization as of early November, according to a report from the Korea Capital Market Institute.

That concentration tends to amplify volatility: When the memory chip cycle is strong, the index can recover quickly, but when investors take profits or sentiment shifts away from risk, declines in those few heavyweight stocks can drag the entire market down, analysts said.

The Kospi Volatility Index rose 27% to hit a record high on Wednesday at the height of the sell-off. It has since fallen to around 8% on Thursday, but remains at record levels.

Retail Leverage Amplifies Swings

Another factor amplifying market moves is South Korea’s large retail investor base and its active derivatives market, according to market veterans.

“This is too much leverage that is weighing on the market,” said Daniel Yoo, global strategist at Yuanta Securities.

“We had a lot of margin calls for retail investors. So they just abandoned it… And then [on Thursday] went up again. “It has nothing to do with the fundamentals.”

Retail investors have been among the biggest buyers of Korean stocks since the beginning of the year, often using margin accounts and through leveraged exchange-traded funds. That means sharp market declines can quickly trigger forced selling as margin calls occur, Yoo said.

Individual investors were the biggest participants in South Korea’s stock market on Thursday, according to data from the Korea Stock Exchange.

Individual traders sold 19.7 trillion won ($13.3 billion) worth of Kospi shares and bought about 21 trillion won, making them the biggest buyers in the market and leaving them with net purchases of about 1.3 trillion won.

Individual investors accounted for the bulk of trading on the Kospi on Thursday, accounting for about 45% of total turnover, compared with about 33% for foreign investors and 22% for institutions, according to Korea Stock Exchange data on Thursday.

Adding to the turbulence is Korea’s sensitivity to energy prices. As a large importer of crude oil, the country is particularly vulnerable to disruptions in global supply.

“While we have seen sell-offs across major stock markets driven by uncertainties around the Middle East, it has been more pronounced in South Korea. [on Tuesday and Wednesday] given its relatively greater dependence on crude oil imports,” said Raisah Rasid, global market strategist at JPMorgan Asset Management.

The semiconductor cycle remains favorable

For now, the market turmoil may simply reflect the end of an overheated rally, said Kim of KB Securities.

“Given the magnitude of Korean retail investors’ leveraged position and the expected prolonged uncertainty over the Iran situation, it would be premature to call for an immediate V-shaped recovery,” he added.

But with semiconductor gains still strong and valuations stabilizing, other market watchers believe the underlying fundamentals of the South Korean stock market remain intact, particularly in the semiconductor sector that dominates the index.

“The pullback appears to be knee-jerk and more sentiment-driven at this stage, rather than fundamentals-driven,” said Kieron Poon, chief investment officer of Asian equities at Aberdeen Investments.

Memory prices, particularly dynamic random access memory (DRAM), have risen after a strong 2025 and are expected to continue growing through the first half of 2026, supporting Korean chipmakers’ earnings, he said.

JPMorgan’s Rasid echoed that view, saying the long-term drivers for Korean stocks remain strong.

“While there are concerns about demand destruction and inventory hoarding, supply and demand dynamics in the memory chip space are likely to remain tight throughout this year and possibly next year,” he said.