The KOSPI posted the steepest decline among major global stock markets this month, as concerns over the sustainability of artificial intelligence investment combined with foreign selling to drag down seven of every 10 listed stocks. Mounting investor losses have driven up forced liquidations and shrunk cash parked on the sidelines.
The KOSPI fell 17.11% between the 1st and the 16th of this month, the largest drop among major stock indexes, the Korea Exchange said on the 20th. Indonesia's IDX Composite followed with a 14.59% loss and China's Shenzhen Composite with a 7.40% decline, while the KOSDAQ also ranked near the bottom with a 7.14% fall. Over the same period, Taiwan's TAIEX and Japan's Nikkei 225 slipped just 1.73% and 2.14%, respectively.
The index's year-to-date gain also narrowed to 34.50%. Through the first half of the year it had ranked first worldwide on the strength of a sharp rally, but it has since entered a downturn and now trails Taiwan's TAIEX, up 62.66%, and Poland's WIG index, up 36.66%. The KOSPI dropped 22.19% in July as losses in global technology shares widened. Modest gains of 3.40% in August and 0.26% in September were not enough to recoup the losses.
So far this month, 1,899 of the 2,760 stocks listed on the KOSPI and KOSDAQ, or 68.80%, have declined. A total of 588 stocks lost 10% or more, and 127 fell more than 20%. Only 727 stocks, or 26.34%, advanced.
Behind this month's slide is sharply heightened caution over spending by AI companies. A drop in the price of corporate bonds issued by AI cloud provider CoreWeave stoked credit risk concerns, and Anthropic's third-quarter revenue growth slowed from the previous quarter. Should the rapid buildout of AI data centers stall, domestic chipmakers would inevitably take an earnings hit. As foreign investors turned net sellers, the KOSPI fell for seven consecutive sessions from the 6th through the 15th. On the 15th, Samsung Electronics and SK hynix tumbled 9.48% and 11.06%, respectively, sending the index down 7.57%.
With losses piling up, forced liquidations are also increasing. Liquidations against unpaid brokerage settlement balances totaled 59.3 billion won on the 13th, 89.3 billion won on the 14th, 80.5 billion won on the 15th and 57.2 billion won on the 16th, exceeding 50 billion won for four straight sessions, according to the Korea Financial Investment Association. Over those four sessions, 286.2 billion won worth of shares could not escape forced liquidation. Forced liquidation refers to a brokerage selling off an investor's shares when the investor fails to pay for a stock purchase within the settlement deadline.
Cash waiting on the sidelines also declined. Investor deposits at brokerages stood at 94.4029 trillion won on the 16th, down 2.5091 trillion won from the previous session and the lowest level since the 7th of last month. The balance of margin loans, a gauge of stock buying with borrowed money, fell 497 billion won from the previous session to 32.2528 trillion won on the 16th, the lowest since it stood at 32.3598 trillion won on the 10th of last month. With forced liquidations of unsettled trades staying elevated and margin loan balances also shrinking, sentiment appears to be deteriorating across the market.
Views on the outlook are split. Some expect share prices to recover, citing chipmakers' solid earnings power, while others say it is too early to call a sustained upturn given lingering credit risk in the AI industry and pressure from foreign investor flows.
"A sustained upturn will require an event strong enough to overcome caution about AI credit risk," an official in the securities industry said. "Earnings announcements from AI companies could be a turning point for gauging the market's direction."
