The South Korean stock market experienced a significant drop, falling over 8% during trading and triggering the sixth circuit breaker of the year. Amid extreme volatility, warnings of 'risk' have emerged from international sources.
According to the Korea Exchange, the KOSPI closed at 7,656.31, down 395.02 points (4.91%) from the previous trading day. After a morning circuit breaker, the index fell to as low as 7,389.22 in the afternoon, prompting the circuit breaker to activate. This year, circuit breakers have been triggered 32 times (16 for selling and 16 for buying), surpassing the previous record of 26 during the first half of the 2008 global financial crisis. This marks the sixth circuit breaker activation this year, with half of the 12 instances in the history of the securities market occurring in 2026.
Despite Samsung Electronics announcing record earnings for the second quarter, the market reacted negatively, with the company's stock dropping more than 7%. SK Hynix also fell over 6%. Analysts noted that the market's expectations for an operating profit of 100 trillion won were not met, leading to a 'sell the news' phenomenon as investors took profits.
Lee Byung-geon, head of research at DB Securities, stated, "The sharp decline in the stock market is ultimately influenced by the drop in semiconductor stocks like Samsung Electronics and SK Hynix. While Samsung's second-quarter results were not poor, it seems the market had overly high expectations for an earnings surprise."
Concerns about the South Korean stock market have also been voiced internationally. Morgan Stanley expressed caution regarding semiconductor stocks, noting in a recent report that investors are shifting their focus to hyperscalers like Amazon, Microsoft, and Meta Platforms, which is dampening the upward momentum of semiconductor stocks. While the investment appeal of big tech companies, central to the AI ecosystem, remains high, the report suggested that the semiconductor stocks that have risen the most this year may struggle to reach new highs in the near term.
Additionally, single-stock leverage products that double the exposure to Samsung Electronics and SK Hynix have been identified as amplifying market volatility. The Wall Street Journal recently assessed the South Korean stock market as being at risk of becoming a 'Squid Game,' highlighting that the proliferation of single-stock leverage products is exacerbating concentration and price distortion in specific stocks. Shin Chung-ho, head of research at LS Securities, remarked, "Concerns are growing that the profitability of memory chip companies may be peaking, and the recent influx of leverage products in the domestic market has further increased volatility. We expect this volatile market to continue until we can confirm whether capital expenditures (CAPEX) are maintained in the upcoming earnings reports from hyperscalers and big tech at the end of July."
As concerns about single-stock leverage products contributing to market volatility mount, financial authorities are expected to announce measures soon. While there are discussions about the possibility of discontinuing these products or halting new launches, the current focus appears to be on strengthening investor protection measures. Potential solutions include enhancing investor education and raising minimum deposit requirements. However, specific plans have not yet been finalized, and it may take time before any improvements are implemented.
* This article has been translated by AI.
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