[Closing Market] KOSPI Plunges 7.57%, Retreating to 5,500 Level

The KOSPI index is displayed on the electronic board at the dealing room of Hana Bank headquarters in Jung-gu, Seoul, in the afternoon on Oct. 15. (Yonhap) The domestic stock market showed a sharp downward trend on Oct. 15 as inflation concerns originating from the United States and anxiety over the investment profitability of the artificial intelligence (AI) industry overlapped. Circuit breakers, which temporarily suspend trading during the session, were activated in both markets. The domestic stock market entered a phase of extreme risk aversion as massive foreign selling and the plunge of large-cap semiconductor stocks led the index decline. The KOSPI faced sharp downward pressure from the opening on this day. The index, which started at 5,673.01, 335.80 points lower than the previous trading day’s closing price of 6,008.81, expanded its decline during the session and closed trading at 5,554.22, down 7.57%. The selling pressure was intense enough for the decline rate to exceed 9% during the session, and the index was pushed down to the 5,450 level at one point. Based on the closing price, it is the lowest level in six months. The Korea Exchange activated a circuit breaker to temporarily suspend trading in response to the sharp decline. This is a signal indicating that overall market investor sentiment has rapidly contracted beyond simple profit-taking. The KOSDAQ also recorded a decline rate in the 7% range, showing a broad-based weakness that did not distinguish between large-cap and small-to-medium-cap stocks. The fact that stocks with falling prices overwhelmed advancing stocks also revealed the market’s anxiety. Among the 917 stocks traded on the KOSPI, 789 fell, and advancing stocks were limited to 113. The index decline was not confined to a few sectors but spread across the overall market. Sell-side sidecars and circuit breakers were successively activated on the KOSDAQ as well. The KOSDAQ closed the session at 760.82, down 63.06 (7.65%) compared to the previous trading day. The index started at 784.45, down 39.43 (4.79%), and then expanded its decline. Institutions and Individuals’ Defense Tested Amid Foreign Selling Spree In the KOSPI market, the massive net selling by foreign investors was the most prominent. Foreigners net sold approximately 3.6241 trillion won (about $2.70 billion) worth of stocks in the benchmark KOSPI market on this day. The foreign selling was concentrated on semiconductor sectors such as Samsung Electronics and SK hynix. The outflow of foreign funds, which hold a high proportion of domestic large-cap stocks, acted as direct downward pressure on the entire index. Individuals and institutions net purchased 1.2886 trillion won and 1.6930 trillion won respectively, but it was insufficient to block the foreign selling offensive. In the KOSDAQ market, foreigners net purchased 215.8 billion won, while individuals and institutions net sold 66.9 billion won and 161.3 billion won, respectively. Samsung Electronics Plunges 9.5% and SK hynix 11.1%… Semiconductor Stocks Hit Stock Market Directly The biggest factor in the domestic stock market’s decline on this day was the plunge in large-cap semiconductor stocks. Samsung Electronics’ stock price fell 9.5%, and SK hynix dropped 11.1%. Samsung Electronics closed at 210,000 won, down 22,000 won (-9.48%) compared to the previous trading day, retreating to the so-called ‘210,000 won Electronics’ level, and SK hynix also closed trading at 1,262,000 won, down 57,000 won (-11.06%), sinking to the ‘1,260,000 won Hynix’ level. In the market, expectations that AI semiconductor demand would continue clashed with concerns over whether actual investment profitability could support this. Samsung Electronics preferred shares (-8.35%) and SK Square (-10.21%) also fell significantly. Although the earnings forecasts of the two companies remain important investment judgment criteria, the market on this day reacted more sensitively to interest rates, valuations, and supply and demand risks than to mid-to-long-term growth potential. Top market capitalization stocks other than semiconductors also could not avoid the downward trend. Samsung Electro-Mechanics (-15.36%), LG Innotek (-9.17%), Daeduck Electronics (-10.69%), LG Energy Solution (-4.62%), Hyundai Motor (-5.74%), KB Financial Group (-1.57%), and Samsung Life Insurance (-7.51%) fell. On the other hand, the pharmaceutical and biotechnology sectors performed relatively well. Samsung Biologics (5.50%), Yuhan (5.09%), and Celltrion (1.28%) closed higher. This shows that the selling pressure did not remain confined to the semiconductor sector but spread to major industries such as batteries and automobiles. It can be interpreted that the movement prioritizing securing cash and reducing risk has strengthened across the overall market. On the KOSDAQ, the decline of semiconductor materials, parts, and equipment stocks was prominent. Jusung Engineering (-14.97%), Leeno Industrial (-11.58%), Wonik IPS (-15.47%), and Simmtech (-11.91%) plunged more than 10%. The downward trend across sectors was strong, including Alteogen (-4.90%), Ecopro (-8.18%), Ecopro BM (-9.10%), Rainbow Robotics (-9.44%), and HLB (-2.98%). U.S. inflation and interest rate forecasts lie behind the sharp decline in the domestic stock market. As the U.S. Consumer Price Index (CPI) for September exceeded market expectations, concerns grew that inflation might not easily subside. If upward price pressure continues, the possibility increases that the U.S. Federal Reserve will maintain interest rates at a high level for longer or undertake additional tightening. When interest rates rise, the discount rate increases in the process of reflecting future growth expectations into stock prices. The burden grows particularly heavy for technology stocks, which have received high valuations premised on long-term growth and massive facility investments. Added to this were doubts over how quickly the funds injected into AI data centers and semiconductor infrastructure could translate into actual revenue and profit. The transmission of the weakness in U.S. technology stocks to domestic semiconductor stocks occurred because these concerns were simultaneously reflected in global fund flows. The fact that the domestic stock market relies heavily on large-cap semiconductor stocks also acted as a factor expanding the decline. Won/Dollar Exchange Rate Rises by 6.3 Won… Financial Market Instability Continues The exchange rate on this day was also affected by the stock market crash. In the Seoul foreign exchange market, the won/dollar exchange rate based on 3:30 pm, the daytime closing time, closed at 1,344.6 won, up 6.3 won compared to the previous day’s daytime trading closing price. This represents a weakening of the won’s value against the dollar, illustrating that risk aversion sentiment was also reflected in the exchange rate. When foreign funds exit the stock market, increased currency exchange demand can heighten downward pressure on the won. However, the exchange rate is jointly influenced by various factors, including U.S. interest rate forecasts, international dollar trends, energy prices, and geopolitical risks, in addition to foreign stock trading. Therefore, it is not appropriate to explain the exchange rate increase on this day solely by foreign stock selling. If the won’s weakness continues, the price burden of imported raw materials and energy can grow, which can also affect domestic inflation and corporate profitability. On the other hand, an exchange rate increase can be a factor partially improving price competitiveness for export companies, so the impact appears differently by sector. The future direction of the domestic stock market is highly likely to vary depending on whether foreign selling subsides, U.S. inflation and interest rate forecasts stabilize, and the earnings forecasts of semiconductor companies are maintained. Although a technical rebound may occur following the short-term plunge, it is difficult to conclude a trend reversal based solely on a single day’s decline. In the cases of Samsung Electronics and SK hynix in particular, AI-related demand, memory prices, High Bandwidth Memory (HBM) supply, and earnings forecasts must be examined while concurrently observing whether overall market risk appetite recovers. Whether foreign net selling decreases, institutional buying flows in, and the upward pressure on the won-dollar exchange rate eases are important observation indicators. The domestic stock market received a massive shock on Oct. 15 as U.S. inflation burdens, controversies over AI investment profitability, and foreign selling overlapped all at once. The simultaneous plunge of the KOSPI and KOSDAQ shows that the market has entered a phase where it is difficult to move based solely on simple earnings expectations. Whether the market stabilizes in the future depends not only on companies’ long-term growth forecasts but also on how quickly interest rates, fund flows, and investor sentiment recover.