Financial markets reel from ‘Warsh risk’ as contagion fears grow

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Financial markets reel from ‘Warsh risk’ as contagion fears grow

Published: 03 Feb. 2026, 00:00

Audio report: written by reporters, read by AI

Major stock indices are displayed on an electronic board at the trading room of Woori Bank’s headquarters in central Seoul on the afternoon of Feb. 2. The Kospi closed at 4,949.67, down 274.69 points, or 5.26 percent, from the previous session. [NEWS1]

Financial markets suffered a bout of what traders dubbed “Black Monday.” On Monday, the Kospi fell 5.26 percent from the previous session, slipping below the 5,000 mark just four trading days after first closing above that level on Friday. The tech-heavy Kosdaq dropped 4.44 percent. The won weakened sharply, losing 24.8 won against the dollar in a single day. Regional markets also retreated, with Japan’s Nikkei down 1.25 percent and China’s Shanghai Composite falling 2.48 percent.

The shock that rippled through Asian markets was quickly labeled “Warsh risk.” On Friday, U.S. President Donald Trump named Kevin Warsh as his pick for the next chair of the Federal Reserve, triggering what investors saw as a tightening shock. The prices of gold and silver plunged 11.38 percent and 31.31 percent, respectively, on the same day, moves rarely seen in those markets. Bitcoin also fell below $80,000 for the first time in nine months.

Warsh, a former member of the Fed’s Board of Governors who opposed quantitative easing, has long been viewed as a policy hawk. Markets now expect that, rather than aggressive rate cuts, he could favor shrinking the central bank's balance sheet to absorb excess liquidity. The contradictory label often attached to him, a “hawkish dove,” reflects growing anxiety that uncertainty over U.S. monetary policy will intensify.

The concern is that Korea is particularly vulnerable to such external shocks. With key industries outside semiconductors losing momentum and domestic demand remaining sluggish, the economy’s fundamentals have been weakening. Anxiety has also been fueled by the speed at which funds have poured into equities. Under the current administration’s push toward a “Kospi 5,000 era,” cash waiting to enter the stock market surpassed 100 trillion won ($68.7 billion) for the first time on Friday. Margin trading has also surged, with outstanding credit balances exceeding 30 trillion won, another record. The heavier the reliance on borrowed money, the greater the risk of a sharp correction when an external shock hits.

Market analysts warn that shifts in U.S. monetary policy could spill over into global financial markets and the real economy. To prevent such uncertainty from spreading into a broader risk for Korea’s economy, the government must act with a heightened sense of urgency and take pre-emptive steps. Above all, excessive efforts to prop up the stock market should not be allowed to amplify risks for households and the broader economy.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.