South Korea’s Kospi sinks above 12 to cap its worst day yet as the Iran conflict heightens risk sentiment.

South Korea’s Kospi sank on Wednesday to record its worst one-day decline, extending a sell-off from the previous session amid sharp falls in Asian markets as a growing war in the Middle East dents investor sentiment.

The Korea Exchange temporarily suspended trading of the Kospi index on Wednesday. A regional break was placed on the Kosdaq as well, which closed 14% lower at 978.44.

The Kospi index finished the session 12.1% lower at 5,093.54 with heavyweights SK Hynix and Samsung Electronics falling about 10% and about 12%, respectively.

The South Korean stock market was on a tear last year, rising more than 75%, and has added gains in the new year as well, with Kospi hitting new highs on the back of semiconductor heavyweights that saw their shares rise on strong demand for memory chips.

“The decline in the KOSPI could be attributed to the same-name volatility we see in the Korean markets,” said Lorraine Tan, Asia director of research at Morningstar.

According to Morningstar data, memory leaders Samsung and SK Hynix make up about 50% of the index.

“We believe that the drop in stock prices is caused by profit taking after a strong run in the risk-free environment, but it also means the growing concern that AI datacenter adoption may be delayed due to its higher energy cost than data centers,” Tan said.

In addition, South Korea’s stock market is particularly sensitive to oil price fluctuations, meaning political shocks in the Middle East tend to cause short-term volatility, said Daniel Yoo, global market analyst at Yuanta Securities.

As a major oil exporter, Korea’s heavy economy is vulnerable to rising energy prices, which could pressure industrial sectors and exports if crude prices rise.

Yoo said the recent drop in the Kospi should be viewed as a correction after a strong rally rather than a fundamental change in the market, adding that stability is likely to return once oil prices stabilize.

South Korea’s oil exports are 2.7% of its gross domestic product, with Nomura citing it as among the worst hit by current account pressure.

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

Businessmen in the region will also be watching the annual parliamentary meeting held by China’s policymakers which will begin at noon.

The conference, called “Two Sessions,” includes a congress that will begin in the afternoon, and the National People’s Congress that will open on Thursday. The Chinese president, Li Qiang, is expected to announce a series of economic reforms at the NPC, which had been largely elected at the 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 slowed in February as manufacturers paused production and shipments to celebrate the extended holiday, an official survey showed on Wednesday.

The official index of purchasing managers of production rose to 49 in February, according to the National Bureau of Statistics, missing the economic estimate of 49.1.

Oil prices extended gains with US crude futures up 2.8% at $75.00, while Brent rose 3.03% to $83.86 a barrel amid rising tensions, with Iran trying to close the Strait of Hormuz.

The head of Iran’s Revolutionary Guard said on Monday that the channel had been closed and warned that any ship trying to navigate the waterway would be targeted, according to Iranian media.

The President of the United States, Mr. Donald Trump, said on Tuesday afternoon that the US Navy will escort tanks through the Strait of Hormuz, if necessary.

“No matter what, the United States will see a FREE ENERGY RATE on EARTH,” he said in a True Social post. “United States’ ECONOMIC and MILITARY MIGHT is the greatest on EARTH – More actions to come.”

The prices of precious metals are high. Spot gold rose 1.64% to $5,170 per ounce, while spot silver jumped nearly 3% to $84.49 an ounce.

Overnight in the US, stocks had another wild rally as worries surrounding the long-running US-Iran trade war dominated the 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 low for 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.