The 7.6-percent crash on Thursday extended the KOSPI’s losses to over 20 percent across seven consecutive sessions, leaving investors who borrowed to chase the rally facing pressure to put up more collateral or sell.
For Jang, a company employee in his 30s working in Seoul’s Seongsu-dong district, can't find words to describe his state of mind. The SK hynix shares he bought at 2.5 million won apiece were trading at roughly half that price.
"I’ve deleted the trading app,” he said. “If I look on, I think I'll get a heart attack."
The KOSPI, once the envy of global markets after doubling from the start of the year to approach 10,000 in June, ended at 5,554.22 — little more than half its June level.
The KOSDAQ also tumbled 7.65 percent to 760.82. Both markets triggered sell-side “sidecars,” temporarily suspending program sell orders.
Semiconductor heavyweights led the decline. SK hynix plunged more than 11 percent and Samsung Electronics lost 9.5 percent as higher-than-expected U.S. inflation and doubts over returns on artificial intelligence investment weighed on technology shares.
The anxiety spilled into online stock forums.
“Can’t the Korean stock market just take a week off?” one user wrote on Naver’s stock discussion board.
“Down 53 percent? Is this real? I’ve lost half of my life savings,” another lamented.
“It feels like another IMF crisis is coming,” a user wrote on Samsung Electronics’ discussion board, referring to South Korea’s 1997 financial crisis and subsequent International Monetary Fund bailout.
The KOSPI 200 Volatility Index, or VKOSPI, jumped 18.26 percent to 53.11, reflecting sharply higher expectations of market turbulence.
Analysts have pointed to intensifying memory-chip competition, uncertain returns on AI investment and foreign investors cutting their exposure to Korean semiconductor stocks. With support from share buybacks weakening, a sustained rebound may depend on foreign buying returning to the two chipmakers.
The stock defeat forcing leveraged stock traders to cough out their holdings is feeding the downward spiral.
Forced sales tied to unsettled stock purchases reached 59.35 billion won on Tuesday, according to the latest available Korea Financial Investment Association data. That was the highest since July 31, when they totaled 122.01 billion won.
The proportion of outstanding unsettled purchases ending in forced liquidation rose to 5.6 percent from 2.7 percent a day earlier.
These sales occur when brokerages liquidate shares to recover unpaid purchase balances. They are distinct from forced sales of stocks bought with margin loans, which can be triggered when investors fail to meet collateral requirements as share prices fall.
Still margin borrowing has barely retreated as bargain hunters stepped in as soon as someone threw in the towel.
Outstanding margin loans stood at 33.7 trillion won on Oct. 14, down 1.6 percent from the previous session. The balance remained 772 billion won, or 2.3 percent, above its Oct. 1 level. Borrowing on the KOSPI alone had increased by 582 billion won over that period.
Investor deposits — cash held in brokerage accounts for stock purchases — slipped under 100 trillion won for the first time since Sept. 21.
Shares that were forced to yield were quickly snapped by those gambling on a repeat of the first-half rally.
Retail investors purchased a net 1.3 trillion won and local institutions 1.69 trillion of KOSPI shares, versus foreign selling of 3.6 trillion won.
“There are still investors looking to buy the dip,” said Yang Jun-sok, an economics professor at the Catholic University of Korea. He warned that some investors might not fully appreciate the risks of leveraged trading until they suffered forced sales.
“In the end, investors may have to experience forced liquidation themselves before they fully understand the risks,” he said. The downturn also comes against a less forgiving global backdrop.
U.S. consumer prices rose 3.7 percent in September, exceeding the 3.6 percent forecast, while core inflation reached 2.6 percent against expectations of 2.5 percent. The figures fueled concerns over further U.S. interest-rate increases, adding pressure on technology stocks.
As South Korea’s chip-heavy market heads south, persistent foreign selling and forced liquidation of leveraged positions threaten to reinforce each other.
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