[Closing Market] KOSPI Plunges 3.7% on Heavy Foreign, Institutional Selling

On the afternoon of Oct. 20, KOSPI index figure is displayed on the electronic board at the dealing room of Hana Bank’s main branch in Jung-gu, Seoul. (Yonhap) The domestic stock market turned downward in just one day, weighed down by the strong joint selling pressure of foreign and institutional investors. Failing to continue the rebound recorded on the previous day and undergoing another sharp correction, the KOSPI index retreated to the 5,550 level, and the KOSDAQ index also closed the market by dropping over 3%. Global economic uncertainty, volatility in U.S. Treasury yields, and shrinking investor sentiment regarding the semiconductor industry conditions all acted at once, casting dark clouds over the entire market. According to the Korea Exchange on Oct. 20, the KOSPI index closed at 5,552.74, plunging 215.27 points (3.73%) compared to the previous trading day. After opening at 5,493.24, which was lower than the previous close, the index showed extreme volatility on this day, even threatening the 5,500 level at one point as it was pushed down by massive selling volumes flowing in from early trading. In the afternoon, some low-end buying by individuals flowed in, slightly reducing the drop compared to the intraday low, but it was insufficient to overcome the strong joint selling wall of foreigners and institutions. The KOSDAQ index also closed at 781.97, down 26.92 points (3.33%) from the previous trading day, in the aftermath of large technology stocks, secondary batteries, and the overall pharmaceutical and biotechnology sectors showing weakness in unison. In the KOSDAQ market as well, foreign selling expanded with the start of the market, weighing down the index, and continued a lethargic trend without attempting an upward turn even once during intraday trading. Market experts analyzed, “In the process of short-term volatility expansion that occurred consecutively over the past few days, the exit trend of foreign funds accelerated, and the index drop expanded as even domestic institutions set out to reduce their weight for risk management purposes.” Foreigners and Institutions Engage in Joint  Dumping from Early Trading The entities that led the stock market decline on this day were foreigners and institutions. Starting with a selling dominance from early trading, foreigners and institutions showed a pattern of joint dumping, fueling the index decline. In the KOSPI market on this day, foreigners net sold 533.3 billion won (about $401.55 million). The massive selling by institutions also added downward pressure on the index. On this day, institutions recorded a selling dominance of 1.0048 trillion won, and among institutions, net selling was prominent in private equity (-458.1 billion won), financial investment (-289.6 billion won), investment trust (-251 billion won), and pension funds, etc. (-55.3 billion won). On the other hand, individuals net bought 898.2 billion won. As SK hynix’s large-scale share repurchase and cancellation entered its final stage, other corporations also net bought 636.6 billion won, showing an attempt to support the bottom of the index. In the KOSDAQ market, foreigners bought 217.1 billion won, while institutions and individuals sold off 163.9 billion won and 67.3 billion won, respectively. In particular, an intensive selling bombardment by foreigners continued, centered around small and medium-sized growth stocks and biotechnology stocks that are facing ongoing overvaluation controversies. Overall Index Shakes Significantly Due to Weakness in Samsung Electronics and SK hynix As the leading semiconductor stocks, which have served as the pillar of the domestic stock market, failed to exert strength, the overall index shook significantly. Accordingly, blue lights flashed in unison for the top 10 KOSPI market capitalization stocks. The weakening of global semiconductor investor sentiment and caution regarding the earnings of global big tech companies dealt a direct hit to stock prices. Samsung Electronics closed at 211,500 won, down 6,500 won (2.98%) from the previous trading day. It could not avoid weakness, sliding to 208,750 won during intraday trading, and the stock price shook significantly as foreign selling was concentrated. SK hynix closed at 1,223,000 won, down 4.23% from the previous trading day. At one point during intraday trading, it increased its drop to 7.36%, sinking to 1,183,000 won, and it is the first time in about six months since on April 21, when the stock market rebounded after plunging following the U.S. invasion of Iran, that SK hynix fell below the 1.2 million won level during intraday trading. Secondary battery stocks such as LG Energy Solution and POSCO Holdings showed weakness in unison amid concerns over slowing electric vehicle demand and caution ahead of Tesla’s earnings announcement. Major large-cap secondary battery stocks could not avoid weakness, recording drops of around 2% to 4%. Hyundai Motor and Kia showed downward trends of around 4% respectively due to economic recession concerns and foreign exits, despite favorable automobile export data. Financial stocks such as KB Financial Group and Shinhan Financial Group generally closed lower in the 1% to 3% range as concerns over weakening profit momentum were raised amid expanding stock market volatility and a trend of downward interest rate stabilization. Large-cap pharmaceutical and biotechnology stocks such as Samsung Biologics and Celltrion also could not avoid weak flat or strong downward trends in the aftermath of foreign net selling. The KOSDAQ market also failed to recover frozen investor sentiment due to the massive decline of top market capitalization stocks. Among the top 10 KOSDAQ market capitalization stocks, nine stocks showed weakness, excluding HLB (0.12%). Ecopro Group stocks, which are representative secondary battery material stocks such as Ecopro BM and Ecopro, recorded decline rates in the 7% to 9% range compared to the previous close, driving the KOSDAQ index decline. Large-cap pharmaceutical and biotechnology stocks such as Alteogen and HLB showed a selling dominance throughout intraday trading as caution following clinical result announcements and changes in the interest rate environment played a significant role, ultimately showing drops of around 2% to 4%. Semiconductor equipment and robot stocks such as Jusung Engineering (-5.44%), Rainbow Robotics (1.72%), EO Technics (-3.77%), Leeno Industrial (-2.74%), and Wonik IPS (-4.88%) also fell. Beauty device and entertainment/game-related stocks that had recently shown relative strength, including consumer goods and game stocks like Classys and Pearl Abyss, also could not avoid the negative factor of worsening supply and demand in the overall stock market and mostly turned downward. Won/Dollar Exchange Rate Stabilizes between 1,320 Won and 1,330 Won Levels Amid the stock market plunge, the won/dollar exchange rate in the Seoul foreign exchange market showed a downward trend even though factors for an exchange rate increase, such as a strong global dollar, the domestic stock market plunge, and foreign investors’ net selling of stocks, overlapped. Although the domestic stock market plunged by over 3% and foreign investors engaged in net selling in over 500 billion won range, the closing price of the daytime trading of the dollar/won exchange rate in the Seoul foreign exchange market (as of 3:30 p.m.) on Oct. 20 dropped by 2.2 won from the previous trading day to 1,328.1 won, renewing the yearly low once again. This marks the renewal of the yearly low for two consecutive days, following the lowering of the yearly low (1,331.4 won) recorded on Oct. 16 to 1,330.3 won on the previous day. During intraday trading, it fell to 1,325.4 won, with the low point also recording a yearly low. Experts diagnosed, “While the demand for selling won and buying dollars persisted as foreign funds exited the domestic stock market, the exchange rate sought stability in the late 1,320 won level as the authorities’ will to stabilize the market and the limited additional rise of the global dollar index (DXY) coincided.” Meanwhile, domestic Treasury bond yields showed mixed fortunes between short-term and long-term bonds, as the outflow of stock market liquidity and safe-haven preference sentiment partially intersected. In the financial investment industry, there is a consensus that the domestic stock market is highly likely to continue a volatile market without finding a direction for the time being. The direction of monetary policies of major global countries, political uncertainties such as the U.S. presidential election, and the upcoming third-quarter earnings announcement results of major big tech companies are expected to be the key factors determining the direction of the domestic stock market. An official from a securities firm suggested, “The phase where the spot and futures trading trends of foreign investors dictate the entire market is continuing. While the possibility of a rebound due to excessive short-term drops remains open, true index rebounding can only occur if the stabilization of key semiconductor stock prices, such as Samsung Electronics and SK hynix, precedes it.” Ultimately, for the time being, a conservative investment approach that manages risks by closely observing exchange rate volatility and changes in foreign supply and demand seems to be more effective than aggressive low-end buying.