The Korean stock market is experiencing a relentless decline, driven by concerns over the performance of global tech giants and a significant gap in investor participation. Investor sentiment has sharply deteriorated, with the KOSPI index dropping 15% and the KOSDAQ falling 11% over the past week. The market has seen five consecutive days of steep declines, triggering six instances of trading halts and circuit breakers, leading to heightened fatigue among investors.
According to data from the Korea Exchange, foreign investors sold a net 11.2395 trillion won ($8.4 billion) from October 12 to 16. During the same period, retail and institutional investors purchased 4.3124 trillion won and 3.4183 trillion won, respectively, while other corporations bought 3.4761 trillion won. However, this buying pressure was insufficient to counteract foreign selling, resulting in a 14.5% decline in the KOSPI compared to the previous week, with the KOSDAQ also down 6.5%.
The top stocks sold by foreign investors included SK Hynix (5.3565 trillion won), Samsung Electronics (3.5070 trillion won), Samsung Electro-Mechanics (533.4 billion won), Samsung SDI (342.7 billion won), and SK Square (320.5 billion won). SK Hynix's stock price fell from 1,605,000 won to 1,265,000 won, a decrease of 21.3%, while Samsung Electronics dropped from 251,000 won to 217,000 won, a decline of 14.6%. Other major stocks also saw significant losses during this period.
The decline is attributed to concerns over the profitability of artificial intelligence (AI) ventures, leading to a lack of foreign investment. While global markets have begun to recover from a sharp drop in July, the Korean market has faced four consecutive months of decline without recovery.
The outlook remains bleak. With the absence of foreign and institutional investors, the buying power of retail investors, who have been a crucial support for the domestic market, is dwindling. As of October 15, the total balance of investor deposits and comprehensive asset management accounts stood at 196.49 trillion won, down 14.5526 trillion won (6.9%) from October 1. This marks the first time since September 17 that the surrounding funds for the stock market have fallen below 200 trillion won.
Margin trading, where investors borrow money to buy stocks, is also declining. The balance of margin loans decreased from 34.2887 trillion won on October 12 to 32.7499 trillion won on October 15, a drop of 1.5388 trillion won (4.5%) in just three days. This decline is attributed to forced selling due to the market drop and voluntary reductions in borrowing by investors.
Market analysts predict that uncertainty will persist until the upcoming Gartner IT Symposium in the U.S. and the NVIDIA annual developer conference in Europe, where the direction of AI will be clarified. Lee Sang-jun, a researcher at NH Investment & Securities, noted, "While the fundamentals appear positive considering the increase in exports from October 1 to 10 and TSMC's strong third-quarter performance, geopolitical risks, the U.S. midterm elections, and earnings schedules necessitate a period of direction-seeking."
As for when a recovery might occur, historical analysis shows that the average recovery period for the KOSPI after a double-digit decline is approximately 14.25 days. For instance, the KOSPI fell 17.2% during the sharp decline from July 28 to 30 but recovered within ten trading days by August 13. In previous instances, recoveries took between six to 34 trading days.
The recovery of the domestic market hinges on the return of foreign investors. Lee Jae-won, a researcher at Yuanta Securities, stated, "Instances where the market failed to rebound after being oversold often coincide with additional economic or credit shocks, such as the global financial crisis or the European debt crisis. The key to a rebound will be maintaining memory profit estimates for 2027-2028 and the influx of foreign buying."
* This article has been translated by AI.
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