KOSPI Hits Record High as US Strikes Curb Hopes for Iran Peace

Asia-Pacific equities traded with mixed performance on Monday, May 26, 2026, as new U.S. military action in the Middle East curbed market optimism for a near-term diplomatic resolution with Iran. South Korea's benchmark KOSPI index defied the broader cautious tone, closing at a historic high of 3,120.12, a gain of 1.2% from Friday's close. Japan's Nikkei 225 declined 0.8% to 38,450.62, while Australia's S&P/ASX 200 finished flat. A report from Investing.com on May 26 detailed the market reaction to the military developments.

Context — why this matters now

The current macro backdrop is defined by U.S. benchmark yields stabilizing near 4.7% after rising sharply earlier in the quarter. Hopes for a diplomatic settlement between the U.S. and Iran, which had contributed to a 4% decline in Brent crude from its May 15 peak, were a key factor supporting risk appetite in export-sensitive Asian markets. The trigger for Monday's divergent moves was the confirmation of new U.S. airstrikes against Iranian-backed militia targets in Iraq over the weekend. This military escalation directly undermined the market's nascent expectation for de-escalation, reintroducing the risk of supply disruptions and higher energy costs. The last time a major military flare-up similarly capped a regional equity rally was in October 2024, following strikes in Syria, which saw the MSCI Asia ex-Japan index shed 2.1% over the subsequent week.

Data — what the numbers show

South Korea's KOSPI index recorded a new all-time closing high of 3,120.12, a level it has not breached since its previous record of 3,105.21 set on May 19. The index is up 8.5% year-to-date, outperforming the MSCI Asia Pacific Index's gain of 6.1%. In Japan, the Nikkei's 0.8% drop to 38,450.62 erased its weekly gain, bringing its May performance to a slight decline of 0.3%. The Japanese yen weakened past 158.20 against the U.S. dollar, a threshold not seen since late April. In commodities, front-month Brent crude futures rose 1.8% to $84.50 per barrel, while West Texas Intermediate climbed 2.1% to $80.15. The yield on the U.S. 10-year Treasury note held at 4.68%, largely unchanged from the prior session.

Index	Level	Daily Change	YTD Change
KOSPI	3,120.12	+1.2%	+8.5%
Nikkei 225	38,450.62	-0.8%	+5.1%
S&P/ASX 200	7,820.40	0.0%	+4.8%
Hang Seng	18,925.11	+0.5%	+3.2%

Analysis — what it means for markets / sectors / tickers

The immediate second-order effect was a clear sectoral divergence. South Korean semiconductor giants like Samsung Electronics (005930) and SK Hynix (000660) gained 2.5% and 3.8%, respectively, buoyed by the KOSPI's momentum and insulated from near-term oil price moves by a weaker Korean won. In contrast, Japanese automakers with high exposure to Middle Eastern markets and input costs, such as Toyota Motor (7203) and Nissan Motor (7201), fell by 1.5% and 2.2%. The primary risk to this analysis is that sustained energy price inflation could eventually pressure the margins of all Asian manufacturers, outweighing the benefits of currency depreciation. Positioning data indicates institutional investors are rotating into technology and domestic-consumption stocks in North Asia while reducing exposure to energy-sensitive industrials and transportation sectors across the region.

Outlook — what to watch next

The immediate catalyst is the U.S. PCE price index data release on May 30, which will inform Federal Reserve policy and global risk sentiment. The next OPEC+ meeting on June 4 will be critical for assessing the cartel's response to renewed geopolitical risk premiums. Markets will watch the KOSPI to see if it can sustain closes above the 3,115 resistance level, which would open a path toward 3,150. A sustained breach of WTI crude above $82.50 would signal a more entrenched risk-off shift for import-dependent Asian economies. For deeper insights on energy market correlations, explore our analysis of oil price shocks.

Frequently Asked Questions

Why did the KOSPI go up when other Asian markets were down?

The KOSPI's record high was driven by strong domestic institutional buying concentrated in flagship technology stocks, particularly memory chipmakers benefiting from a weaker Korean won. Local investors appear to be discounting the broader geopolitical risk, focusing instead on strong corporate earnings and expectations for continued capital inflows from foreign funds rebalancing into South Korean equities ahead of index reviews.

How do US military strikes typically affect Asian stock markets?

Historically, limited or targeted U.S. strikes in the Middle East have caused a short-lived flight to quality, benefiting the U.S. dollar and Treasury prices while pressuring emerging market equities. However, the impact on Asia is often heterogeneous. Energy-importing nations like Japan, India, and Thailand see sharper equity sell-offs compared to export powerhouses like South Korea and Taiwan, which can sometimes gain competitive currency advantages.

What is the historical significance of the KOSPI at 3,120?

The KOSPI first breached the 3,000-point level in January 2025. The climb from 3,000 to 3,120 represents a 4% gain achieved in just under five months, a pace that outpaces its historical average. The index's rally has been largely driven by the semiconductor sector's recovery, which accounts for over 25% of the benchmark's weighting, making it more sensitive to global tech cycles than to regional geopolitical events.

Bottom Line

The KOSPI's decoupling from regional risk aversion highlights the dominant influence of sector-specific capital flows over broad geopolitical narratives.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.