By the end of the day, the Kospi had settled at 5,093.54, reflecting a 12% decrease. Major players in the market, such as SK Hynix and Samsung Electronics, saw significant declines, with their shares dropping over 9% and more than 11%, respectively.

This downturn marked a stark contrast to the previous year’s performance, where the South Korean market had surged by over 75%. The rally continued into the current year, with the Kospi reaching unprecedented heights, largely fueled by the booming demand for memory chips from semiconductor giants.

The Kospi index ended the session 12% lower at 5,093.54 with heavyweights SK Hynix and Samsung Electronics falling more than 9% and over 11%, respectively.

The South Korean market had been on a tear last year, soaring more than 75%, and extending gains into the new year as well, with the Kospi hitting fresh highs on the back of semiconductor heavyweights that have seen their shares surge on strong memory chip demand.

“The decline in the KOSPI can broadly be attributable to the single-name concentration that we see in the Korean markets,” said Lorraine Tan, Asia director of equity research at Morningstar.

According to Morningstar data, memory leaders Samsung and SK Hynix constitute almost 50% of the index.

“We believe that the drop in share prices is partly driven by profit taking after a strong runup amidst a risk-off environment but also implies growing concern that the AI datacenter adoption pace might slow due to its significantly higher energy costs than regular data centers,” Tan said.

Additionally, South Korea’s stock market is particularly sensitive to swings in oil prices, meaning geopolitical shocks in the Middle East tend to trigger short-term volatility, said Daniel Yoo, global market strategist at Yuanta Securities.

As a major oil importer, Korea’s manufacturing-heavy economy is vulnerable to rising energy costs, which can pressure industrial and export-oriented sectors when crude prices spike.

Yoo said the recent drop in the Kospi should be viewed as a correction after a strong rally rather than a fundamental shift in the market’s outlook, adding that stability was likely to return once oil prices settle.

South Korea’s net oil imports are 2.7% of its gross domestic product, with Nomura flagging it among the most vulnerable to current account pressures.

Japan’s Nikkei 225 lost 3.61% to 54,245.54 while the Topix declined 3.67 to 3,633.67.

Investors in the region will also be watching an annual parliamentary meeting by China’s policymakers that kicks off later in the day.

The gathering, dubbed the “Two Sessions,” consists of a consultative congress that will start later in the day, and a National People’s Congress due to open Thursday. Chinese Premier Li Qiang is set to announce a series of economic targets at the NPC, which had largely been decided at a December meeting. 

Australia’s S&P/ASX 200 fell 1.94% to 8,901.2. Hong Kong Hang Seng index lost over 2.28%, while the mainland CSI 300 was down 1.14% to 4,602.62.

China’s factory activity faltered in February as manufacturers paused production and cargo shipments to celebrate an extended holiday, an official survey showed on Wednesday.

The official manufacturing purchasing managers index fell to 49 in February, according to the National Bureau of Statistics, missing economists’ forecast for 49.1.

Oil prices extended gains with U.S. crude futures up 2.8% at $76.65, while Brent rose 3.03% to $83.86 per barrel amid a widening conflict, with Iran attempting to close the Strait of Hormuz.

A senior commander from Iran’s Revolutionary Guard said on Monday that the critical artery had been shut and warned that any vessel attempting to transit the waterway would be targeted, according to Iranian media.

U.S. President Donald Trump said Tuesday afternoon that the U.S. Navy will escort tankers through the Strait of Hormuz, if necessary.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” he said in a Truth Social post. “The United States’ ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH — More actions to come.”

Prices of precious metals rose. Spot gold advanced 1.64% to $5,170 per ounce, while spot silver jumped almost 3% to $84.49 per ounce.

Overnight in the U.S., socks had another wild session as concerns around a prolonged U.S.-Iran conflict rattled markets.

The Dow Jones Industrial Average lost 403.51 points, or 0.83%, and ended at 48,501.27. The S&P 500 slipped 0.94% to close at 6,816.63, while the Nasdaq Composite shed 1.02% to settle at 22,516.69. At their lows of the day, the S&P 500 lost 2.5%, and the Nasdaq was down about 2.7%. The 30-stock Dow was down more than 1,200 points, or around 2.6%, at its nadir.

—CNBC’s Lim Hui Jie, Sean Conlon and Pia Singh contributed to this report.