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A monitor in KB Kookmin Bank’s dealing room in Seoul’s Yeouido area shows the KOSPI’s close for Aug. 5, 2024, at 2,441.55. (Yonhap)

Amid anticipation of an Iranian response to a recent Israeli offensive and worries about economic stagnation in the US, stock markets throughout Asia tanked on Monday as investors fell into a widespread panic, making for the worst “Black Monday” in history. Compounding crises in both the US and the Middle East are aggregating with fears about an AI bubble and markets around the world are roiling. The South Korean government needs to thoroughly analyze and observe market conditions and act swiftly to minimize damage to the South Korean market. 

At one point during trading, the KOSPI index fell over 10%, compared to the previous day, on the Korea Exchange on Monday. The index somewhat recovered later to close the day at a drop of 8.77%. After both the KOSPI and the KOSDAQ indexes fell over 8%, the Korea Exchange activated a circuit breaker, a regulatory emergency measure that halts all trading, for the first time in nearly four and a half years. The Japanese Nikkei 225 index fell 12.4%, and markets in Taiwan, Singapore, and Australia all took massive dives. 

The crash in key markets around the world seems to have been caused by worries about an economic recession in the US, where the unemployment rate was reported to be 4.3% in July, the highest in three years. Fears of a recession were coupled with concerns over a bubble related to AI firms, which saw astronomical rises before the crash. South Korea’s Ministry of Economy and Finance issued a press release on this day saying that it will “maintain a high level of vigilance.” 

It went on to say that the government and the Bank of Korea will “keep a 24-hour monitoring system for financial markets at home and abroad and respond according to contingency plans if necessary under a close collaboration among relevant agencies.”

A decisive factor that could exacerbate economic anxiety is another hot war in the Middle East. An Israeli offensive in Iran killed Hamas political leader Ismail Haniyeh on July 31. Iran has vowed retaliation. During his meeting with Jordanian Foreign Minister Ayman Safadi in Tehran on Friday, Iranian President Masoud Pezeshkian said, “This was a grave mistake by the Zionist regime that will not go unanswered.” 

During a meeting with his G7 counterparts on Sunday, US Secretary of State Antony Blinken said that it’s possible that Iran and Hezbollah, an anti-Israeli militant group based in Lebanon, would attack Israel within the next 24 to 48 hours. 

While the war in Gaza, which began last October, is causing much suffering among the Palestinians, the pain it has caused the global economy is relatively minor. Yet if the longtime enemies of Israel and Iran engage in a full-scale hot war, the conflict could easily spread to the wider Middle East. This would disrupt the flow of crude oil from the Middle East to East Asia. Now is not the time for South Korean politicians to squabble amongst each other. They need to prepare for the external shocks that lie ahead.

Please direct questions or comments to [english@hani.co.kr]