While Korea's KOSPI has tumbled more than 20% since the start of October, the U.S. S&P 500 has fallen only about 2%. One market expert says fragile fund flows, not corporate earnings, are what has weighed more heavily on the Korean market.
The KOSPI closed at 5,550.30 on the 23rd, according to the Korea Exchange and overseas closing data compiled on the 24th. The index had fallen as much as 3% during the session before reversing to finish 0.30% higher. The close was 20.8% below the Oct. 2 close of 7,003.74 and 34.5% below the June 30 level of 8,476.48. The KOSDAQ fell 1.62% to 751.69.
Declines in the U.S. over the same period were far smaller. The S&P 500 closed at 7,663.43 on the 22nd, 2.0% below its Oct. 6 close of 7,818.93, when it topped the 7,800 mark for the first time. The Nasdaq ended at 26,008.86, down 5.8%. The Nasdaq slid 2.60% on the 22nd, its steepest one-day drop since June, on concerns over Meta's AI spending. On the 23rd, all three major indexes fell, with the Dow down 1.23% as international oil prices rose above $116 a barrel.
Both markets have been shaken, but the losses have been much steeper in Korea.
Speaking on Samproh TV, a Korean financial YouTube channel, the chief executive said the current downturn has been unusually painful for investors, with fatigue building as the U.S. and Korean markets move in different directions. The market has run out of strength, the CEO said. Daily trading value on Korean exchanges, which once reached 80 trillion won, has recently slipped to the low 10 trillion won range — a sign of how deep investor disappointment runs.
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The scale of the decline is another problem, the CEO said, adding that even accounting for concerns about AI investment, it is hard not to feel dismayed and ask whether there was any reason for Korean stocks to fall this far. In the U.S., the drop can be read as the market pricing in doubts about interest rates and AI spending, the CEO said, but in Korea prices have already moved beyond those worries.
The CEO pointed to Samsung Electronics (005930) as an example. The stock is trading near where it was in March and April, when operating profit was in the 50 trillion won range, while the market now expects operating profit of around 107 trillion won — nearly double what the company was earning then. The reason undervaluation is not translating into a rebound is that fund flows have become too fragile, the CEO said, adding that with daily volatility beyond normal bounds, it raises doubts about whether the market is functioning properly.
The U.S. market is also hard to view with pure optimism, the CEO said. Because the AI industry is centered in the U.S., any assessment of the Korean market has to take into account where the U.S. stands, the CEO said. Earnings outlooks themselves have not changed much, but the market is dominated by doubts over whether companies can keep borrowing to invest amid high interest rates and rising oil prices. If raising additional funds also becomes difficult while rates stay high, those doubts are bound to persist, the CEO said.
The recommended response was to wait. It is not easy to move aggressively right now, the CEO said, urging investors to watch until the variables are sorted out and then return to focusing on the competitiveness of industries and individual companies. The CEO traced the starting point of the market's anxiety to the war, saying supply-side factors account for much of the current inflation, so if the conflict is wrapped up at some level, part of the burden will ease and next year's market may be worth some expectations.
There was also a call for policy action. If this is a side effect triggered by policy, the market cannot simply be told to sort it out on its own, the CEO said, stressing that because Korean stocks are reacting more fragilely than their U.S. counterparts, policies to improve financial market conditions are needed.