[Closing Market] KOSPI Plunges 4.91% to 7,650 Range Amid Dollar Rate Closing at 1,528.2 won, Down 2.1 won

The domestic financial market was engulfed in a massive shockwave. As fears of a global economic slowdown and the semiconductor industry’s peak-out (passing the peak) rapidly spread, the KOSPI index plunged nearly 5% in a single day. This is the result of an indiscriminate bombardment of sell-offs poured out by foreign and institutional investors, centered on large-cap stocks.

According to the Korea Exchange (KRX) on July 7, the KOSPI index closed at 7,656.31, plummeting a staggering 395.02 points (4.91%) from the previous trading day’s closing price of 8,051.33. After starting the day lower at 7,919.20, down 132.13 points (1.64%) from the previous session, the KOSPI exposed extreme volatility, being pushed down to 7,389.22 at one point during intraday trading as the selling pressure swelled uncontrollably as time passed. Entering the afternoon, some bargain hunting by individual investors flowed in and somewhat recovered the losses, but it ultimately closed barely hanging on to the 7,650 mark.

On the same day, the KOSDAQ index also failed to avoid a bearish trend. The KOSDAQ closed trading at 831.23, down 15.84 points (1.87%) from the previous session’s closing price. Although there was a brief attempt to rebound in early trading, the panic sentiment originating from the KOSPI market was transmitted intact, and it closed in a downward trend pushed by the simultaneous selling pressure of foreigners and institutions.

Foreign and Institutional All-out ‘Sell’ Offensive, A Market Single-handedly Supported by Individuals

The ones leading the stock market plunge on this day were foreign and institutional investors, the two major pillars of supply and demand. They dragged down the indices while maintaining an ultra-large-scale net selling stance regardless of the Securities Market (KOSPI) and the KOSDAQ market.

In the KOSPI market, foreign investors led the downward trend by recording massive net selling. Right after the start of the market, foreigners poured out profit-taking and risk-asset aversion volumes centered on large-cap stocks with top market capitalizations, such as semiconductors and automobiles. Institutional investors also actively joined the selling ranks, centered on Financial Investment, Investment Trust, and Private Equity Funds, aggravating the downward pressure. The trillion-won scale net selling volume poured out by these foreigners and institutions completely demolished the market’s downward support line.

On the other hand, individual investors absorbed the market’s panic selling (fear selling) volume with their whole bodies. Individuals judged it as a bargain hunting opportunity whenever the index plummeted, and launched an all-out ‘buy’ offensive while gradually increasing their purchase scale. Individuals single-handedly fought a lonely defensive battle, but it was insufficient to reverse the overwhelming selling trend of foreigners and institutions.

In the Securities Market, foreigners and institutions sold off 2.9174 trillion won (approximately $1.91 billion) and 307.4 billion won, respectively. On the other hand, individuals actively defended the index by net buying 3.1325 trillion won.

A similar supply and demand structure unfolded in the KOSDAQ market. While foreigners and institutions recorded simultaneous net selling and burdened the index, individual investors alone showed a net buying advantage and digested the volume. The KOSDAQ market’s downward movement was also supported by the individuals’ buying pressure, but it failed to prevent the overall contraction of investment sentiment.

The KOSDAQ index closed at 831.23, down 15.84 points (1.87%) from the previous session. In the KOSDAQ market, individuals and institutions sold 411.8 billion won and 23.4 billion won worth, respectively, but foreigners bought 435.6 billion won worth.

Market Capitalization Top Stocks Trend: Direct Hit on Semiconductor Top Two, Indiscriminate Decline of Major Large-cap Stocks

The major stocks with top market capitalizations collapsed miserably, uniformly turning on blue lights. In particular, the plummet of representative large-cap semiconductor stocks, which are the pillars of the domestic stock market, was prominent.

The top 10 stocks in KOSPI market capitalization mostly declined. Samsung Electronics (-6.92%), SK hynix (-6.06%), SK Square (-9.30%), Samsung Electro-Mechanics (-9.85%), Hyundai Motor (-4.48%), LG Energy Solution (-6.35%), Samsung Life Insurance (-4.70%), and Samsung C&T (-5.56%) fell, but Samsung Biologics (1.21%) and KB Financial Group (1.35%) closed higher.

Samsung Electronics recorded a plummet of around 5% compared to the previous trading day as concerns over the slowdown in global semiconductor demand and doubts about the growth potential of the artificial intelligence (AI) sector were highlighted. As foreigners’ selling pressure concentrated on Samsung Electronics, the stock price was pushed down significantly, providing the biggest cause for the index decline.

The shock to SK hynix was even greater. With concerns raised over intensifying competition in the High Bandwidth Memory (HBM) market and the possibility of global big tech companies adjusting their infrastructure investment pace, SK hynix’s stock price drew a steep downward curve throughout the intraday trading. Despite some relief buying flowing in late in the session, it closed the market leaving a deep margin of decline compared to the previous session.

Other leading stocks positioned in the upper ranks of the KOSPI market capitalization, aside from the semiconductor sector, also failed to avoid a simultaneous bearish trend. Representative automobile stocks such as Hyundai Motor and Kia, which continue to face concerns over an electric vehicle chasm (temporary demand stagnation), along with the large-cap secondary battery stock LG Energy Solution, all closed in a downward trend amid the exodus of foreign investors’ funds. Samsung Biologics and Celltrion, the leading bio stocks, also could not escape the spread of risk asset aversion sentiment across the overall stock market and joined the downward flow.

On The First Day of 24-Hour Trading, the Exchange Rate Settles at 1,528.2 Won, Down 2.1 Won

Unlike the stock market’s plummet, the foreign exchange market showed relatively calm movements and displayed a somewhat stable trend. In particular, this day was the first weekly closing day faced after the regular trading hours for the won-dollar exchange rate were extended from the previous 3:30 p.m. to 2:00 a.m. the following day, in accordance with the government’s foreign exchange market structure improvement plan.

In the Seoul foreign exchange market on this day, the won exchange rate against the dollar concluded weekly trading (as of 3:30 p.m.) at 1,528.2 won, down 2.1 won from the previous trading day’s weekly trading closing price. After starting at 1,528.9 won under the influence of early morning trading, the exchange rate on this day also raised its high point to the 1,530 won range in early trading as news of the domestic stock market’s plummet and reverse remittance demand following foreigners’ net selling of stocks flowed in.

However, the fact that the global dollar value itself showed weakness strongly restricted the upper end of the exchange rate. As the U.S. Institute for Supply Management (ISM) manufacturing index for June showed a gentle slowing trend at a level meeting market expectations, expectations for an interest rate cut by the U.S. Federal Reserve (Fed) were maintained, and the dollar index fell to the 100.84 level.

In addition, whenever the exchange rate crossed the 1,530 won line, a sense of caution regarding the Foreign Exchange Authorities’ fine-tuning (smoothing operation) was triggered, suppressing the offshore investors’ sentiment for chase buying. Ultimately, despite the domestic stock market’s record plummet, the won-dollar exchange rate closed trading in a downward trend, bolstered by the global weak dollar and caution toward the authorities.

Expert Suggestion: “Excessive Fear Is Prohibited, but Confirmation of Macro Indicators Is Necessary”

Stock market experts diagnosed this day’s massive plunge as a result of the slowdown in U.S. economic indicators and the consequent changes in global asset allocation strategies being reflected somewhat drastically in the domestic stock market. It is an analysis that volatility was amplified by overseas negative factors due to the characteristics of the Korean stock market, which has high external dependence and an absolute proportion of semiconductors.

A research center head at an asset management company explained, “As foreigners and institutions poured out trillion-won scale profit-taking sell-offs centered on information technology (IT) and large-cap semiconductor stocks, the market’s physical strength deteriorated rapidly,” and added, “The fact that the intraday KOSPI decline reached 5% appears to be driven more by the market’s psychological panic than by fundamental (basic physical strength) elements.”

Another securities firm analyst advised, “Considering that the won-dollar exchange rate closed relatively stably in the late 1,520 won range, signs of systemic risk originating from the foreign exchange market are not being detected,” but added, “As market volatility has been maximized in the short term, a split buying approach from a conservative perspective will be effective until the heightened panic sentiment calms down and the U.S. Fed’s monetary policy direction and core economic indicators become visible.”