Another Double Slump! Why Have Japanese and South Korean Stocks Become the "Top Victims" Amid U.S.-Iran Hostilities?

On Monday, Asia-Pacific equity markets suffered a broad sell-off as escalating threats between the U.S. and Iran stoked investor fears of a protracted conflict. Japan and South Korea once again emerged as the "epicenter" of the rout.

 

South Korea’s KOSPI opened 3.5% lower, with losses widening to over 6% intraday. At the time of writing, the index was down 5.80% at 5,445.34.

 

The Korea Exchange triggered a "Sidecar" circuit breaker after KOSPI 200 futures plummeted 5%, suspending programmed trading for five minutes. Among heavyweights, SK Hynix fell over 5%, while Samsung Electronics and Hyundai Motor both dropped nearly 5%.

 

Japan’s Nikkei 225 opened down 1.68% and plunged over 2,600 points during the session. It currently sits at 51,582.23, a 3.35% decline.

 

The TOPIX Growth Market 250 Index futures triggered a circuit breaker, with trading resuming at 9:40 AM local time. Elsewhere, other markets also saw sharp pullbacks; at the time of writing, Australia’s S&P/ASX 200 fell nearly 1%, and the Hang Seng Index slumped over 3%.

The U.S.-Iran Standoff Escalates

U.S. President Trump threatened on Saturday to "destroy" Iran's power infrastructure if Iran fails to fully reopen the Strait of Hormuz within 48 hours. This "ultimatum" drew a sharp response from Tehran.

 

According to reports, on March 21 local time, President Trump posted on "Truth Social" that if Iran fails to fully and safely reopen the Strait of Hormuz within 48 hours, the U.S. will launch strikes against various power plants across the country and "completely destroy" them, starting with the largest facility.

 

Early on the 22nd, the Khatam al-Anbiya Central Headquarters of the Iranian Armed Forces warned that if Iran’s fuel and energy infrastructure is attacked, all energy facilities, IT systems, and desalination plants belonging to the U.S. and its allies in the region will become targets for retaliation.

 

Furthermore, Iranian Parliament Speaker Mohammad Baqer Qalibaf posted on social media that if key infrastructure such as power plants and oil facilities are attacked, similar targets throughout the region will be considered legitimate targets and will face "irreversible destruction," leading to a long-term spike in oil prices.

Why Are Japan and South Korea Bearing the Brunt?

In the current U.S.-Iran conflict, Japanese and South Korean equities have undeniably become the "top victims." Every sign of escalation triggers the most aggressive sell-offs in these two markets.

 

Analysts believe the core reason is that both Japan and South Korea are among the world’s major oil and gas importers, with an extreme dependency on the Strait of Hormuz. Geopolitical tensions leading to oil price surges cause energy costs to skyrocket, exacerbating fears of imported inflation.

 

Data shows that over 90% of Japan's oil imports originate from the Middle East, while approximately 70% of South Korea's crude comes from the region. Goldman Sachs estimates that a 60-day disruption in the Strait would trigger a temporary contraction in the Japanese economy—a risk already flagged by the Bank of Japan. Citi recently predicted that sustained high oil prices could shave nearly 0.5 percentage points off South Korea’s 2026 GDP growth.

 

Another major reason for the violent reaction in these markets is their heavy concentration in energy-sensitive and supply-chain-heavy leaders. Analysts note that the shock is tied both to short-term energy dynamics and specific market characteristics, such as the high proportion of international institutional capital. When global risk rises, international investors tend to reduce exposure in these highly liquid but sensitive markets first.

 

Additionally, both indices have high weights in cyclical sectors—such as Japan’s automotive, machinery, and chemicals, and South Korea’s semiconductors, shipbuilding, and petrochemicals—which are highly sensitive to energy prices and global trade.

 

Since the conflict began, both nations have taken steps to mitigate the impact, including Japan releasing record oil reserves and South Korea reviving its "Oil Price Cap System" for the first time in 30 years. Latest reports indicate Japan will deploy 800 billion yen to suppress gasoline prices, while South Korean Finance Minister Koo Yun-cheol called for proactive policies to prepare for a long-term crisis, with the ruling party drafting a 25 trillion won supplementary budget.