Korea war risk: what a war on the Korean Peninsula would do to stocks, sector by sector
Under review: something we watch has changed (nEW ESCALATION). The figures stand until the review is done.
What is happening
North and South Korea are still technically at war: the fighting stopped in 1953 but never formally ended. A new war has never happened, and markets have only flinched at past threats.
South Korea makes about two in every five of the world's memory chips, the chips that store data in every phone and server. Most of those factories are near Seoul, within range of North Korean artillery.
Three ways it could go
Calm case · Tense Standoff
Things carry on as they are. North Korea keeps testing missiles and making threats, the South and the United States keep drilling, and now and then there is a scare. Nothing breaks, and the chip factories keep running.
We put the chance of this at about 9 in 10 (very likely).
Middle case · Regime Collapse
Kim's government falls apart. The United States, South Korea and China rush to secure the North's nuclear weapons, and their troops may come face to face. South Korea's factories mostly keep working, so the world economy takes only a small knock: Bloomberg Economics estimates about half a percent in the first year.
We put the chance of this at about 1 in 14 (very unlikely).
Severe case · War
Open war. North Korean artillery and missiles hit Seoul and the area around it, where most of South Korea's chip factories are. Bloomberg Economics estimates South Korea's economy would shrink by more than a third and the world economy by about 4%, some $4 trillion, in the first year: more than twice the cost of Russia's war in Ukraine.
We put the chance of this at about 1 in 33 (almost no chance).
Which sectors are exposed
In the case we rate most likely (Tense Standoff), the model shows no further move for any sector.
| Sector | Calm caseTense Standoff | Middle caseRegime Collapse | Severe caseWar |
|---|---|---|---|
| Korea & Japan | 0.0% | ▼ −6.5% | ▼ −50.7% |
| Luxury | 0.0% | ▼ −6.0% | ▼ −46.8% |
| Airlines | 0.0% | ▼ −5.5% | ▼ −42.9% |
| EM equities | 0.0% | ▼ −5.0% | ▼ −39.0% |
| China equities | 0.0% | ▼ −4.5% | ▼ −35.1% |
| Financials | 0.0% | ▼ −4.5% | ▼ −35.1% |
| Tankers | 0.0% | ▼ −4.5% | ▼ −35.1% |
| EM bonds | 0.0% | ▼ −3.5% | ▼ −27.3% |
| Autos | 0.0% | ▼ −2.5% | ▼ −19.5% |
| Broad market | 0.0% | ▼ −2.5% | ▼ −19.5% |
| Energy producers | 0.0% | ▼ −2.5% | ▼ −19.5% |
| Reconstruction | 0.0% | ▼ −2.5% | ▼ −19.5% |
| Big tech | 0.0% | ▼ −2.0% | ▼ −15.6% |
| LNG | 0.0% | ▼ −2.0% | ▼ −15.6% |
| Agriculture & food | 0.0% | ▼ −2.0% | ▼ −15.6% |
| Gulf producers | 0.0% | ▼ −2.0% | ▼ −15.6% |
| Defence | 0.0% | ▼ −2.0% | ▼ −15.6% |
| Semiconductors | 0.0% | ▼ −1.5% | ▼ −11.7% |
| Utilities | — | — | — |
| Gold | — | — | — |
No figure (—) for Utilities, Gold: we give these sectors no number in this crisis. That is not the same as saying they do not move.
A Korean war has never happened, so these are estimates anchored to Bloomberg Economics, with share effects borrowed from the Taiwan model: a map, not a forecast.
How sure are we?
Not very. A war has never happened in the age of these markets, so nobody can measure it. Our figures for the world economy come from Bloomberg Economics; the effect on each kind of share is borrowed from our Taiwan model, not measured. Treat it as a map of what could happen, not a forecast.
What to watch next
- North Korean nuclear or ICBM tests, and any exchange of fire across the border or at sea
- Ship crossings through the Korea Strait (IMF PortWatch): a fall below 60% of the 2022 level
- New institutional estimates of what a Korean war would cost
Your own holdings
The table shows sectors. To see how this crisis reaches the shares you hold, add them in the Workspace: free, no sign-in needed.
The other crises we model
- Strait of Hormuz / Iran Conflict EMPIRICAL
- Taiwan Strait / Semiconductor Chokepoint UNPRICED
- Red Sea / Bab el-Mandeb UNPRICED
- Panama Canal drought UNPRICED
- US tariff shock EMPIRICAL · one real event, replayed
- Russia–Ukraine war EMPIRICAL · one real event, replayed
Insights · Help · Methodology
We measure the risk. You make the call.
DELAX describes exposure. It is not investment advice.