Panic in the Stock Market: KOSPI Plummets 20% in Just Over a Week

 
The South Korean stock market is in a state of panic, with the KOSPI index dropping more than 20% in just seven trading days, resulting in a loss of approximately 1,200 trillion won in market capitalization. This marks the most significant decline since the COVID-19 pandemic began over six years ago. The KOSPI, which had soared past the 7,000 mark in June, has now fallen to the mid-5,500 range in just three months. Analysts suggest that the sudden downturn has exposed the fragile supply-demand structure of the domestic market as positive factors that had supported the rally have simultaneously weakened.
 
According to the Korea Exchange, the KOSPI has experienced a continuous decline since October 6. On October 15, the index fell by 454.59 points (7.57%), bringing the total drop over the past ten days to 1,449.52 points (20.70%). The index, which stood at 7,003.74 just over a week ago, has now plummeted to the mid-5,500s.
 
The speed of the decline is comparable to past financial crises. An analysis of daily KOSPI data since April 2003 shows that this is the first time the cumulative decline over seven trading days has exceeded 20% since March 2020, during the COVID-19 pandemic. At that time, the KOSPI fell from 1,962.93 on March 10 to 1,457.64 on March 19, a drop of 25.74% over seven trading days. During the global financial crisis from October 15 to 24, 2008, the index fell by 29.96% over the same period.
 
The scale of the market capitalization loss is staggering. The total market capitalization of the KOSPI, which was approximately 5,775 trillion won on October 2, has decreased to about 4,581 trillion won by October 15. This means that around 1,194 trillion won in corporate value has vanished in just seven trading days.
 
The sharp decline in major semiconductor stocks has been a significant driver of the market capitalization loss. Samsung Electronics fell approximately 24% from 276,000 won on October 2 to 210,000 won on October 15. Similarly, SK Hynix dropped about 31%, from 1,841,000 won to 1,262,000 won during the same period. On October 15 alone, Samsung Electronics and SK Hynix saw declines of 9.48% and 11.06%, respectively.
 
The combined market capitalization loss from these two stocks amounts to approximately 809 trillion won. Samsung Electronics' market capitalization decreased from about 1,614 trillion won to 1,228 trillion won, a loss of around 386 trillion won, while SK Hynix's market cap fell from about 1,345 trillion won to 922 trillion won, a reduction of approximately 423 trillion won. Together, these two stocks account for about 68% of the total market capitalization decline in the KOSPI.
 
Foreign investors have also contributed to the index's decline through significant capital outflows. From October 6 to 15, foreign investors sold a net 18 trillion won worth of KOSPI stocks. In contrast, individual investors purchased a net 11 trillion won, and institutions bought about 1.6 trillion won, but these purchases were insufficient to counteract the index's drop.
 
The foreign selling has been particularly concentrated in major semiconductor stocks. From the beginning of October until the 14th, foreign investors sold a net 3.4 trillion won of Samsung Electronics and 8.2 trillion won of SK Hynix, totaling approximately 11.6 trillion won. As expectations for improved semiconductor performance have weakened, the outflow of foreign capital has accelerated the decline in stock prices.
 
The immediate cause of the stock market's sharp drop is attributed to a surprising rise in U.S. inflation. Higher-than-expected inflation pressures have diminished expectations for interest rate cuts by the Federal Reserve, leading to increased market interest rates and greater valuation burdens on stocks.
 
However, the underlying issue is a loss of confidence in the AI investment cycle. Companies that benefited the most from the expansion of AI investments, particularly memory semiconductor firms, are reacting sensitively to concerns about a slowdown in investment.
 
Lee Jin-woo, a researcher at Meritz Securities, stated, "The fundamental issue is skepticism about the AI cycle, while consumer price index (CPI) figures are secondary variables. In the past, the focus was on the feasibility of recovering large-scale AI investments, but now the question has shifted to whether funding is available and if investments can continue."
 
Concerns are growing that the demand for semiconductors may slow more quickly than expected due to increased funding burdens on U.S. AI infrastructure companies. Unlike large tech firms like Google, Amazon, and Microsoft, smaller AI infrastructure companies that have relied on borrowing to expand their capital investments are facing new financial risks.
 
Choi Hyun-jae, a researcher at Yuanta Securities, noted, "Companies like Google, Amazon, and Microsoft can invest in AI based on strong cash flows, but the situation is different for smaller hyperscalers. As funding becomes more challenging, there are forecasts that AI-related demand may be lower than expected."