The KOSPI slumped again after just one session, deepening anxiety over whether the market has found a floor. Analysts said past corrections have produced lower lows even after a rebound, and that easing inflation concerns will be necessary for the market to regain an uptrend.
The KOSPI closed the previous session down 201.89 points, or 3.52%, at 5,533.77, according to the Korea Exchange on the 23rd. Samsung Electronics (005930.KS) and SK hynix (000660.KS) fell 4.03% and 5.80%, respectively, dragging the index lower. The KOSDAQ also ended down 3.62% at 764.10. Despite strong earnings from Meta, doubts over the profitability of artificial intelligence investments and the funding burden they carry were cited as the backdrop.
Lee Eun-taek, an analyst at KB Securities, said in a report titled "What Is Needed for a W-Shaped Bottom" released the previous day that a W-shaped correction was in fact the more likely outcome after such a sharp drop. Looking at past cases in which the KOSPI fell more than 25%, there was almost no instance of a V-shaped rebound in which the index recovered immediately after the plunge, with the exception of 2020. Most cases instead showed a W-shaped rebound or a continued downturn, the analyst said. A W-shape describes a pattern in which the market rebounds after a plunge, then falls again to retest its low.
Viewed over a horizon of several months, the KOSPI bottomed in late July, rebounded and moved sideways through August and September, attempted a recovery into early this month, and has since turned lower again. "We still do not know whether the market will slide into a downturn or return to an uptrend," Lee said. "There have been cases where the second bottom was lower than the first." The remark suggests it is difficult to conclude that the risk of further declines has passed.
KB Securities divided the recent pressure on stocks into two factors: concerns over memory chips and over inflation. In the early stage of the KOSPI's plunge, which began on the 7th of this month, earnings forecasts for chipmakers and rising interest rates were the burden, while shocks from the consumer price index (CPI) and import prices weighed on the market afterward, the brokerage said. Easing either the memory chip concerns or the inflation concerns would be enough to open the way to a rebound, it said.
"What the market needs going forward is news that will lower inflation pressure," Lee said. "In terms of events, nothing would be better than news that could push oil prices down, such as negotiations with Iran." The indicators to watch are the price component of the U.S. Institute for Supply Management (ISM) manufacturing index and wage growth in employment data. A sharp slowdown in these readings would ease the burden from prices.
Still, if evidence accumulates that price instability is becoming entrenched, the difficulties facing the stock market will not be easily resolved, the analyst said. Lee said optimistic and pessimistic inflation readings are likely to alternate at intervals of one to two months over the next one to two quarters, but added that he does not take an optimistic view of inflation over a longer horizon of about a year.
