South Korea's KOSPI index has seen unprecedented volatility, dropping by approximately 39.3% from its all-time intraday high of 9,385.59 on June 19 to 5,691.17 on July 30. The market experienced its largest monthly decline in history, with a 33% drop in July alone, and circuit breakers, typically used for market stabilization, were triggered on both the KOSPI and KOSDAQ for two consecutive days for the first time ever. This severe downturn led to a loss of about $2.18 trillion in market capitalization across South Korean equities in just two days.
Analysts attribute the sharp decline primarily to the unwinding of highly leveraged positions in AI-driven technology stocks, which had previously fueled a significant rally. Despite strong earnings reported by companies like SK Hynix, which saw a six-fold jump in profit, the results often fell short of aggressive market expectations, leading to "panic selling." For example, SK Hynix shares, after initial plunges, closed down 9.6%, while Samsung Electronics fell as much as 14% before trimming losses to 5.2%.
In response to the market turmoil, the South Korean government announced immediate measures to curb single-stock leveraged products. This includes proposals for individual investment limits, potentially capped at 20% of an investor's total investment, higher trading costs to deter excessive activity, and mandatory simulated trading requirements. Finance Minister Koo Yun-cheol publicly apologized for the introduction of single-stock leveraged ETFs, acknowledging their role in increasing market volatility.
Despite the recent two-day plunge, the KOSPI index remains up 41.5% in U.S. dollar terms year-to-date, making it the best-performing major global stock market. However, analysts warn that leverage within Korean equities remains high, and further unwinding could be expected. Various financial institutions have set potential short-term bottoms for the KOSPI, with Yuanta Securities suggesting 5,100 points, DB Financial Investment at 5,300 points, and Hana Securities around 5,200 points, anticipating a rebound into the low 5,000-point range after an adjustment period.
Concerns about the market's stability are widespread, with many investors and analysts questioning if the current levels represent the true bottom. The market's aggressive sell-off has spread from large-cap semiconductor stocks to mid- to small-cap companies, exacerbated by external uncertainties and a cooling of investor sentiment surrounding the semiconductor industry.
