The spectacular rally in South Korea’s stock market suffered a sharp reversal on Monday, with the benchmark Kospi tumbling 7%. Rising tensions across the Middle East dragged the index 511 points down to 6,964.76 as rising geopolitical tensions in the Gulf rattled investors worldwide.The sell-off came after Iran claimed it had closed the strategically vital Strait of Hormuz, sending oil prices sharply higher and reviving fears of persistent inflation.The weakness extended across broader Asian markets, with most major indices trading in the red around 9 am IST. Japan’s Nikkei fell 1.12%, while China’s Shanghai Composite and Shenzhen Composite declined 1.49% and 2.53%, respectively. Singapore’s Straits Times Index slipped 0.23%, while Hong Kong’s Hang Seng Index was down 0.17%. The spike in crude 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 Chair Kevin Warsh’s first testimony before Congress since taking office, scheduled for Tuesday.Technology stocks led the fall in Seoul. SK Hynix fell 10%, while Samsung Electronics lost more than 6%. Together, the two companies make up nearly half of the Kospi’s total market weight, amplifying the impact of the sell-off.The latest decline has dragged the Kospi more than 25% below its June peak, placing the index firmly in technical bear market territory after it had briefly slipped into that zone last week.Monday’s losses extended an already difficult period for South Korean equities. Last week, the market had dropped nearly 8% as investors became increasingly wary over whether the rapid pace of AI-related investment can be sustained.The correction has also intensified concerns that valuations of AI-linked semiconductor companies had risen faster than their underlying fundamentals. South Korea’s chipmakers have been among the biggest winners from booming demand for advanced AI hardware, but the latest sell-off highlights how quickly market sentiment can reverse when questions emerge over the longevity of that demand.The concentration of the Korean stock market in a handful of semiconductor companies has made the index especially sensitive to changing investor sentiment around the global AI trade.However, even after the steep correction, the Kospi remains the world’s best-performing major stock index in 2026, having gained 63% so far this year. Much of that rally has been driven by AI-related semiconductor stocks.In the commodity markets, oil prices continued to rise while gold suffered. After a brief spell of calm, brent crude was up 4.28% at $79.26 a barrel, while WTI crude rose 4.37% to $74.53 a barrel. Spot gold, meanwhile, dropped 1.2% to $4,072.78 per ounce.