Double setback again! In the flames of the US-Iran war, why have the stock markets of Japan and South Korea become the biggest "victims"?

On Monday, the Asia-Pacific stock markets all fell as both the US and Iran threatened to escalate hostile actions, causing investors to worry about the ongoing escalation of tensions in the Middle East. The stock markets in Japan and South Korea once again became the "hard-hit areas" for selling. The South Korean KOSPI index opened down 3.5%, with the decline widening to over 6% at one point, and as of the time of writing, it was down 4.71% at 5457.13 points. After the KOSPI 200 futures on the Korea Exchange fell 5%, the KOSPI index circuit breaker mechanism was activated, and program trading was suspended for 5 minutes. In terms of heavyweight stocks, SK Hynix's stock price fell by more than 5%; Samsung Electronics and Hyundai Motor's stock prices both dropped nearly 5%. The Nikkei 225 index opened down 1.68%, falling over 2600 points at one point, and as of the time of writing, it was down 3.35% at 51582.23 points. The Japan TOPIX growth market 250 index futures triggered the circuit breaker mechanism and resumed trading at 9:40 am local time. Other stock markets also saw significant declines, with the Australian benchmark index S&P/ASX 200 down nearly 1%; and the Hang Seng Index down over 3%. US-Iran escalation Last Saturday, US President Trump threatened that if Iran did not fully reopen the Strait of Hormuz within 48 hours, he would "destroy" Iran's nuclear program. This "ultimatum" was met with a strong response from Iran. According to CCTV news, on March 21st local time, US President Trump posted on the social media platform "Real Social" stating that if Iran did not fully reopen the Strait of Hormuz within 48 hours without any threats, the United States would strike all types of power plants in its territory and completely destroy them, with the largest being the first target. In the early hours of the 22nd local time, the Iran Armed Forces Hatham Ambia Central Command warned that according to previous warnings, if Iran's fuel and energy infrastructure were attacked, all energy infrastructure, information technology systems, and seawater desalination facilities of the United States and its allies in the region would be targeted. In addition, Iran's Speaker of the Islamic Council, Kali Bau, stated on social media that if Iran's power plants, energy, and oil facilities, and other critical infrastructure were attacked, then all similar targets in the region would be considered legitimate targets and would face irreversible destruction, leading to a long-term increase in oil prices. Why are the Japanese and South Korean stock markets hit hardest? In this US-Iran conflict, the Japanese and South Korean stock markets have undoubtedly become the biggest "victims." Every time there is any sign of escalation in the US-Iran situation, the sell-off in the Japanese and South Korean stock markets is the most intense. Analysts believe that the core reason lies in the fact that both Japan and South Korea are major importers of oil and natural gas in the world and are highly dependent on the Strait of Hormuz for energy imports. The tense situation in the Middle East has led to a surge in oil prices, causing a sharp increase in energy costs in both countries and exacerbating concerns about input inflation. Data shows that more than 90% of Japan's imported oil comes from the Middle East, while around 70% of South Korea's crude oil imports come from the Middle East. Goldman Sachs estimates that if the interruption of oil transportation through the Strait of Hormuz continues for 60 days, the Japanese economy will experience temporary contraction, a risk that the Bank of Japan is closely monitoring. Citigroup recently forecasted that due to the concerning geopolitical situation in the Middle East, if oil prices remain high, South Korea's GDP growth rate in 2026 could decrease by nearly 0.5 percentage points. Furthermore, another important reason why the Japanese and South Korean stock markets have reacted most strongly in this US-Iran conflict is that both markets are highly concentrated in energy/supply chain-sensitive leading companies. Some analysts have stated that the impact on the Japanese and South Korean stock markets is related to both short-term impacts on the energy landscape and some specific characteristics of these markets. For example, both the Japanese and South Korean markets have a high proportion of international capital. When global geopolitical risks escalate, international investors often reduce their exposure to these markets. Additionally, the Japanese and South Korean stock markets have a high weighting of cyclical stocks, such as Japan's automotive, machinery, and chemical industries, as well as South Korea's semiconductor, shipbuilding, and petrochemical industries. These industries are very sensitive to energy prices and global trade. Since the outbreak of the US-Iran conflict, both Japan and South Korea have taken multiple measures to mitigate the impact of oil supply disruption on the market and the overall economy, such as Japan releasing record oil reserves and South Korea reintroducing the "crude oil pricing limit system" after 30 years. According to the latest reports, Japan will use about 800 billion yen in budget reserves to suppress gasoline prices. On March 22nd, South Korean Finance Minister Ju Runzhe called for active policy measures to be taken at a cross-department meeting on the Middle East crisis to prepare for the long-term impact of the Middle East crisis. In addition, a spokesperson for the ruling party in South Korea stated that South Korea would draft a supplementary budget of about 25 trillion won.