South Korea stocks crashed 18% in two days. Could it happen here?

In this articleSouth Korean stocks quickly fell from grace following the U.S. and Israeli strikes on Iran.

But Wall Street doesn't see that as a harbinger for anything that's to come in the U.S.The benchmark Kospi Index tumbled more than 12% Wednesday — its worst-ever single day of trading. Korean stocks have plungedmore than 18% so far this week, on track for their biggest weekly loss since 2008.South Korea's stock market was dark on Monday for a national holiday. But a sharp selloff came Tuesday when markets reopened Tuesday in the wake of the Mideast conflict. Korea imports nearly all its fossil fuels, including oil and natural gas, all of it brought in by tanker. About 70% of Korea's oil imports and up to 30% of liquified natural gas comes from the Middle East, according to the U.S.

Energy Information Agency.Both the U.S. and Korean markets have been described as concentrated in a handful of stocks. But U.S. investors are quick to point out that Korea's concentration is far greater than even the U.S. What's more, U.S. indexes recently hadn't seen dramatic gains as had their international counterparts."It's all about perspective," said Jay Woods, chief market strategist at Freedom Capital Markets. More than one-third of the Korean index is made up of only Samsung Electronics and SK Hynix, Larry Tentarelli of the Blue Chip Trend Report noted. By comparison, the two largest stocks in the S&P 500 — Nvidia and Apple — account for 14% of the index, he said.Samsung Electronics has soared 216% in the past 12 months. SK Hynix, a semiconductor maker, is up 356% over the past year, even including its latest decline, leaving them both "extremely extended," Tentarelli said. If Nvidia and Apple had made such a run, the S&P 500 would be up more than 40% year to date. Instead, the S&P 500 is little changed in 2026."Those numbers are definitely short term bubble numbers, which led to the sharp correction," Tentarelli said.SK Hynix and Samsung Electronics both plunged by 10% or more in Wednesday's trading in Seoul, at one point leading to a temporary suspension of trading on the Korea Exchange, the country's stock market. Despite the U.S. market being "very headline driven," with geopolitical developments often driving investor sentiment in the midst of the U.S.-Iran war, Tentarelli said any index volatility would pale next to the Kospi's drop this week.A 12% one-day decline in the U.S. market would feel like the "end of the world," Woods said. But because of the broad diversification in the U.S., together with NYSE and Nasdaq circuit-breakers, both based on the S&P 500, Woods said he doesn't believe such a slide is likely.U.S. market crashes are typically about breadth — and thus far, breadth has held up, especially considering the backdrop, Woods added.Woods also said the Korean market was more susceptible to a major correction following its outsized rally.Despite this week's turmoil, the Kospi is still up more than 20% in 2026 alone, and 100% over the past 12 months. By contrast, the S&P 500 is up a fraction in 2026 and 19% compared with a year ago."It is earth-shattering when you see a 12% drop in an index in one of the bigger countries in the world," Woods said. But, "to me, what we're seeing in these foreign markets are people rushing for the exits because they know they have a good profit, and the selling is causing a bit of a capitulation."Korea is the 14th largest economy in the world, according to the International Monetary Fund, larger than Australia, the Netherlands and Saudi Arabia.Woods said the Kospi's move looks similar to recent declines in precious metals and Peru's market, which saw major declines after monster runs.Woods acknowledged the U.S. market has faced significant drawdowns in recent years tied to the Covid pandemic, the runup in interest rates and inflation, and President Donald Trump's tariffs.But he noted those happened over longer periods than the Korea's two-day shock. Mizuho's trading desk told clients that Korean stocks entered a bear market — and it "only took" three days.Part of the selloff can also be explained by the prevalence of small investors in Korea.The iShares MSCI South Korea ETF (EWY) "has gone from a retail darling to retail investors rushing for the exits," VandaTrack analyst Viraj Patel wrote to clients.The fund had seen a record, rolling one-month net flow of $266 million from retail investors, eight-times the previous high. The ETF saw its highest-volume trading day in history on Tuesday.Speculation among traders within the country could also play a role. Korean investors have been piling into leveraged trades, betting on the country's market, Bloomberg reported.The Morning Squawk newsletter by Alex Harring is your rundown of five things to know before the stock market opens.Subscribe here to get access today. Got a confidential news tip? We want to hear from you.Sign up for free newsletters and get more CNBC delivered to your inboxGet this delivered to your inbox, and more info about our products and services.© 2026 Versant Media, LLC.

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