Kospi’s dream rally fails as world’s best-performing stocks fall 9% – what’s behind the crash?

The impressive rally in South Korea’s stock market took a sharp turn on Monday, with the Kospi index falling 9%. Rising tensions in the Middle East lifted the index from 669.01, or 8.95%, to 6,806.93 as rising geopolitical tensions in the Persian Gulf worried investors around the world.The sell-off came after Iran said it had closed the strategically important Strait of Hormuz, sending oil prices soaring and reviving fears of persistent inflation.The weakness spread to broader Asian markets, with most major indexes trading in the red around 9am EST. Japan’s Nikkei fell 1.12%, while China’s Shanghai Composite and Shenzhen Composite fell 1.49% and 2.53%, respectively. The Straits Times Index in Singapore was down 0.23% and the Hang Seng Index in Hong Kong was down 0.17%. A jump in oil prices strengthened the US dollar and pushed bond yields higher as investors increased bets that the US Federal Reserve could raise interest rates again.Markets are also awaiting Federal Reserve Chairman Kevin Warsh’s first testimony before Congress since taking office, scheduled for Tuesday.Technology shares led the decline in Seoul. Shares of SK Hynix fell 10%, while shares of Samsung Electronics lost more than 6%. Together, the two companies account for nearly half of Kospi’s total market weight, adding to the impact of the sell-off.The latest decline leaves the Kospi more than 25% below its June peak, putting the index firmly in technical bear market territory after briefly slipping into that zone last week.Monday’s losses extended an already difficult period for South Korean stocks. The market fell nearly 8% last week as investors became increasingly wary of whether the rapid pace of AI-related investment could be maintained.The correction also fueled concerns that the valuations of AI-related semiconductor companies were rising faster than their underlying fundamentals. South Korean chipmakers have been among the biggest winners of rising demand for cutting-edge artificial intelligence equipment, but the recent selloff shows how quickly market sentiment can change when questions arise about the longevity of that demand.The concentration of the Korean stock market in a few semiconductor companies has made the index particularly sensitive to changes in investor sentiment regarding the global AI trade.However, even after the sharp correction, the Kospi remains the world’s best-performing major stock index in 2026, up 63% this year. Much of this rally was driven by semiconductor stocks with artificial intelligence ties.In commodity markets, oil prices continued to rise, while gold suffered. After a brief lull, the price of Brent oil rose 4.28% to $79.26 per barrel, and WTI oil rose 4.37% to $74.53 per barrel. Spot gold, meanwhile, fell 1.2% to $4,072.78 an ounce.(This is a popular Google Trends topic.)