Trade halt after South Korean equities fall 10% from peak
South Korean stocks experienced a decline from their record peak as investors liquidated positions in major semiconductor companies amid growing apprehension that the recent rally may have become excessive. The Kospi closed down 10%, with losses extending following a 20-minute trading suspension by the Korea Exchange. SK Hynix Inc. and Samsung Electronics Co. both experienced declines exceeding 12%. The pullback highlights the increasing volatility of what has been the world’s top-performing major equity index this year. Leveraged exchange-traded funds associated with chipmakers have intensified price fluctuations, leading the leading financial regulator to express regret over the approval of these high-risk products.
“After an extended momentum driven rally, the Korean market has become increasingly sensitive to shifts in retail investor sentiment, particularly as attention has turned to leverage in the retail base,” said Gary Tan. Such moves are frequently magnified by liquidity and derivative positioning, he added. Sentiment regarding high-flying tech stocks exhibited instability in US trading on Monday, as SpaceX shares experienced a decline and focus shifted towards the upcoming quarterly results of memory chipmaker Micron Technology Inc. later this week. Investors are paying attention to a regional media report indicating that SK Hynix is recalibrating the speed of its HBM4 mass production expansion while intensifying its initiatives in the commodity DRAM sector.
The stock market has exhibited multiple indicators of overheating in recent days. SK Hynix shares experienced an increase of over 2% for eight consecutive days, pushing its year-to-date rally to nearly 350% earlier this week. Retail investors have augmented their utilisation of leverage. Margin debt, which refers to the borrowing utilised for stock purchases, reached an unprecedented level of 38.5 trillion won this month, as reported by the Korea Financial Investment Association. “It appears that forced liquidation commenced between 2 and 3 p.m., leading to an acceleration of sell orders and a subsequent decline,” stated Kim Namho. Foreign investors divested approximately 5 trillion won in Kospi shares on Tuesday, whereas retail traders increased their holdings by a remarkable 7.9 trillion won.
A volatility gauge monitoring Korean stocks increased to nearly 90, approaching its peak from early June. Officials are considering stabilisation measures to mitigate the potential repercussions from significant fluctuations in ETFs associated with Samsung Electronics and SK Hynix, as stated by Financial Supervisory Service Governor Lee Chan-jin during a briefing on Monday. “The selloff appears to be driven mainly by profit-taking after the recent sharp rally, as the market had become increasingly overbought,” stated Ha SeokKeun. “Elevated retail leverage and margin balances have likely exacerbated the decline, rendering the market more susceptible to adverse catalysts.”
