Panic Sweeps Korean Stocks in Biggest One-Day Crash Since 2008

Panic swept across trading desks in South Korea as eocal stocks, by far the hottest in the world over the past year, extended their freefall into Wednesday.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Panic swept across trading desks in South Korea as eocal stocks, by far the hottest in the world over the past year, extended their freefall into Wednesday. Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Down more than 12% at one point following a 7.2% drop in the previous session, the high-flying Kospi Index is headed for its biggest single-day slide since 2008. The losses were driven by the heavyweights that had supercharged the market higher until last month — Samsung Electronics Co., SK Hynix Inc. and Hyundai Motor Co.

From Wall Street strategists to mom-and-pop traders who had just started to pile into the market, the plunge came as a surprise. The artificial intelligence boom had helped push the Kospi up nearly 50% this year at its peak. Sentiment was euphoric, forcing analysts to raise their already-bullish forecasts to keep up with the gains.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Yet that momentum is unraveling fast — with forced selling of leveraged bets likely accelerating the losses. As surging oil prices on the Iran war threaten a spike in inflation and pressures importers — Korea is the world’s eighth-largest crude consumer — investors are rethinking overheated equity bets. Trading in both Kospi and Kosdaq shares was suspended for 20 minutes after the gauges fell by the 8% threshold. “Moves are too extreme so forecasting feels almost impossible — analysis doesn’t really help,” said An Hyungjin, chief executive officer at Seoul-based Billionfold Asset Management Inc. “Retail investors seem to hesitate as well, bids are fading since yesterday. While we’re picking quality names and hedging, this isn’t a clear opportunity.” Read: Won’s Plunge May Just Be Start of Bigger Losses, Analysts SayThere were signs that things were starting to get out of control. Margin debt as well as investor deposits at brokerages surged to new highs as sentiment got overheated, while skeptics questioned the sustainability of a rally driven by a handful of stocks. “There’s been a lot of buying on credit, especially those heavyweight stocks, with investors putting down only 30%-40% in margin deposit,” said Kim Dojoon, chief executive and investment officer at Seoul-based Zian Investment Management. Those holdings are seeing forced liquidation, and if there’s another drop on Thursday, nobody will catch a falling knife, he said. In a sign that authorities are preparing for potential spillover of volatility into broader markets, Lee Eog-weon, chairman of the Financial Services Commission, asked relevant institutions on Tuesday to actively use contingency plans if needed. For much of the past year, Korean equities were something of a global outlier, bucking the so-called “AI scare trade” and rising even on days when regional shares were down. Insatiable demand for memory chips drove multi-fold gains in Samsung and SK Hynix, while the government’s push for corporate reform also prompted a re-rating of the long-undervalued market.

Lee Jae Myung’s administration actively encouraged equity investment, seeing a booming stock market as one way to relieve economic woes ranging from sluggish consumption to a property bubble. Just last week, Lee’s office said the president himself has put his apartment on sale.Read: Failed Day Trader President Steers Korea Market to World’s Best For sure, Kospi’s world-beating rally means even with the slide, the benchmark is still up 23% this year, adding to a 76% advance in 2025. The benchmark remains above the 5,000 milestone, which was part of President Lee’s campaign slogan.The macro background has been favorable, with chip shipments buoying exports and consumer sentiment getting a lift from equity gains. Yet economic uncertainties are rising — traders now see two rate hikes by the Bank of Korea on inflation risks. Foreign funds were net sellers of Kospi stocks through midday, offloading about 1 trillion won ($680 million) worth of equities. Retail investors added positions, though at a much slower pace than in the previous session. The Kospi 200 Volatility Index, a gauge of option prices, spiked to the highest since November 2008. “Local brokers started halting providing margin and we’re seeing retail buy-the-dip much weaker today,” said Shawn Oh, an equity trader at NH Investment & Securities Co. in Seoul. “We might see further weakness during the last hour of trading due to fears of margin call.” Not all stocks were down. Energy shares Daesung Energy Co., Kukdong Oil & Chemicals Co. and Korea Petroleum Industries all rose about 30%.This “may create select opportunities to build positions in companies and industries that are now trading at attractive prices,” said Park Sojung, a portfolio manager at Matthews Asia. “Korean industrials such as defense and shipbuilding may again be highlighted as beneficiaries of global instability, constrained supply, and Korea’s growing strategic importance.”—With assistance from Winnie Hsu and Haram Lim.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.