Is Korea’s Market Boom Hitting a Geopolitical Wall?

Host Elizaveta Gridneva sits down with Heejung Kim, Managing Director at Direxion, to unpack a dramatic week in the Korean market as geopolitical tensions and oil shocks trigger massive swings in the Kospi. They also explore Korea’s unique retail investor culture, the outsized role of semiconductor giants, and whether China’s slower growth outlook matters in a world focused on bigger global risks.

Summary – IBKR Podcasts Ep. 361

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Elizaveta Gridneva

Welcome to our latest podcast. My name is Elizaveta Gridneva, and today I’m joined by Heejung Kim, who is the Managing Director at Direxion. Heejung is focusing on Asia business development. Today, our discussion will be focused on the Korean market, and let’s dive straight to it.

Heejung, can you characterize the movement in the Korean market in response to the ongoing Middle East conflict?

Heejung Kim

Yeah, sure. So the Korean equity market has experienced its wildest week so far. Since Monday was a holiday, the market didn’t really react to the Iran headlines right away. When it reopened on Tuesday, the Kospi possibly dropped more than 18% in those two days. Wednesday alone was down 12.4%, which is now the biggest single-day decline in the index’s history. Then, almost as if flipping a switch, the market bounced back yesterday with a 9.6% gain, and it’s been moving between minus 3.5% to flat today. It’s now almost flat. What makes all of this even more surprising is that the Kospi was up 48% year to date before this week, ranking among the strongest markets globally. So yes, it’s been a great performer for months. The swings have been quite huge, and the way it traded this week really highlighted how the market is reacting much more to global headlines than to anything happening domestically.

Elizaveta Gridneva

Understood. Yeah, quite volatile times. And why have Koreans responded so strongly to the deepening global conflict?

Heejung Kim

If you think of how the economy is built, then it makes sense. Korea is heavily dependent on imported energy, and it imports 98% of its fossil fuels from other countries. Of that, about 70% of those imports pass through the Strait of Hormuz. When Iran threatened to block those routes, Korea felt the shock immediately, more than most countries, I think. Also, the makeup of the Kospi index amplified the move as well. Two companies, Samsung Electronics and SK Hynix, together make up almost half of the entire index.So when oil prices jumped and investors started worrying about inflation and the energy demands of AI-driven data centers, semiconductor stocks got hit right away. Actually, memory chip names went down quite a lot.

If you think of Micron in the US session on Tuesday, it sold off sharply and ended the trading day with more than a 7% loss. So Samsung and SK Hynix followed the same pattern. Shipping is also an important sector for Korea, and many shipping stocks fell more than 15%, especially those tied to routes that could be affected if Hormuz were to be closed.

Even though shipping isn’t as big in the index as semiconductors, the size of the drop added to the overall volatility this week.

Elizaveta Gridneva

Understood. And let’s shift away from the news toward the Korea market in general. Can you characterize the typical profile of Korean retail investors? What do they trade?

Heejung Kim

Yeah, Korean retail investors are very interesting. They are incredibly active and also pretty bold.

Among Asia markets, Koreans consistently rank among the heaviest traders of US equities, leveraged ETFs, crypto, and other various derivatives. There were times when Korean investors accounted for 30% to 40% of the volume in certain US leveraged ETFs, and close to 40% of global crypto trading volume. Especially for the past couple of years, they were well known for trading US leveraged and inverse ETFs, whether on semiconductors, US indices, or big American names like Tesla and Palantir. For Direxion, as one of the biggest leveraged ETF providers, we’ve been watching how Koreans are trading these instruments and taking more risk. There has been strong demand in sectors like energy, technology, AI, and semiconductors. These leveraged and inverse ETFs are short-term trading vehicles by design. For active retail investors globally, these have been useful tools to trade in both upside and downside markets, and Koreans were some of the most active in this space. More recently, as the Kospi started to outperform and the government introduced tax incentives for converting US investment gains back into Korean won, money has shifted from US stocks back into Korean equities.

But still, Korean retail investors hold more than 150 billion USD in US stocks, so the overall overseas position remains very strong.

Elizaveta Gridneva

That’s very interesting. Thank you for the insights into the Korea market. And what do you think is next for the local Korea market? Will it continue to outperform for the foreseeable future?

Heejung Kim

It’s always tricky to talk about what comes next without crossing into predictions, especially with macro events like the Iran conflict right now, which are inherently unpredictable. But there are some supportive elements for the Korea market right now. First of all, the government has been very clear about wanting to strengthen the equity market, and they are backing that up with actual policy changes. Real estate has always been the dominant asset class in Korea, and policymakers are actively trying to shift more wealth from the property market into equities by adjusting tax rules.

They also worked with the ruling party to pass reforms aimed at reducing the Korea discount, including the new requirement for companies to eventually retire treasury shares instead of holding them forever or using them in the wrong way, such as for leadership succession. These steps have created a stronger sense of confidence among both Korean and foreign investors by showing that the government is committed to making the market more transparent and more investor-friendly. At the same time, many research firms and investment banks remain constructive on the memory chip cycle. Since Samsung and SK Hynix are such a large component of the index, any strength in their share prices naturally has a big impact on the Kospi. Wrapping up, the outlook is positive and promising. But again, the market has been very sensitive to global news, so how things evolve will depend largely on broader developments rather than domestic ones. And as the index has skyrocketed for the past couple of months, investors should invest carefully in Korea given the huge volatility right now.

Elizaveta Gridneva

Yes. One last question for you, Heejung. Now, on a separate topic, I would actually like to hear your thoughts on the recent China announcement that it has set a lower growth trajectory for its economy. How might investors respond to that?

Heejung Kim

So it’s expected that China is setting its lowest growth target in more than three decades, projecting 4.5% to 5% GDP growth for 2026. It’s a clear signal that its economy is slowing down, and it reflects deep domestic issues such as a collapsing property sector, persistent deflation, and weak consumer demand. But the market reaction to this news is minimal. The Hang Seng Index is up 1.7% right now. The CSI 300 Index is also positive, up 0.3%. In the market, investors are not really caring about it, and there are not many headlines about this right now. So it looks like the market seems familiar with lower GDP targets from China already. And since there are much bigger issues right now, the Iran issue is a bigger problem to worry about. So people really don’t care about this GDP news, I think.

Elizaveta Gridneva

Hi. Thank you. Thank you for joining me. It’s great. Yes, hi. Thank you for joining me today. And if you enjoyed today’s episode, please subscribe to our channel wherever you download your podcasts from.