The Korea Composite Stock Price Index (KOSPI) fell below the 3,400 level for the first time in 10 trading days. The Kosdaq index also slipped below 840 for the first time in 11 trading days. It was the worst day since Aug. 1, when the KOSPI and Kosdaq each posted declines of more than 3% and 4%, respectively, on shock from the Lee Jae-myung administration's tax reform plan.
With the domestic stock market having risen sharply recently, foreign and institutional investors rushed to take profits ahead of the Chuseok holiday. The indices' losses widened as the won-dollar exchange rate surged (won weakness) while the South Korea-U.S. trade talks remained deadlocked.
The KOSPI closed at 3,386.05 on the 26th, down 85.06 points, or 2.45%, from the previous day. The Kosdaq finished at 835.19, down 17.29 points, or 2.03%. Both the KOSPI and Kosdaq ended at their lowest closing levels since the 11th.
Foreigners and institutions were net sellers of more than 1.1 trillion won combined on the KOSPI market. On the Kosdaq, foreigners showed a net selling advantage of 84.1 billion won. Institutions turned to net buying of 8.5 billion won late in the session, and individuals also went on a "buy" of 81.2 billion won.
On the KOSPI market, prices fell for 779 stocks, while only 121 rose. On the Kosdaq, prices fell for 1,418 stocks, more than six times the number of gainers (239).
Semiconductors, which had been propping up the KOSPI, also lost steam. Samsung Electronics and SK hynix saw their market capitalization evaporate by 16.575 trillion won and 14.56 trillion won, respectively, in a single day. Most other heavyweights, including LG Energy Solution, Samsung Biologics, Hanwha Aerospace, Hyundai Motor, and HD Hyundai Heavy Industries, were weak.
The Kosdaq market was no different. Most large caps by market capitalization, including Alteogen, ECOPRO BM, Ecopro, Peptron, and Rainbow Robotics, were weak. However, PharmaResearch rose by more than 5%.
Asian markets were generally weak on the day. The impact was largely due to strong U.S. economic data that dampened expectations for interest rate cuts. The final reading of U.S. gross domestic product (GDP) growth for the second quarter (April–June) came in at 3.8%, up 0.5 percentage points from the advance estimate. Weekly jobless claims also fell to the lowest level in about two months.
U.S. Treasury yields jumped, led by the long end. The dollar index, which measures the U.S. currency against six major currencies, vaulted past the 98 level. Lee Kyung-min, a researcher at DAISHIN SECURITIES, said, "As the global stock market's record-high rally has faded, the trend of becoming sensitive to bad news has become clear," adding, "The weakened short-term liquidity environment at the end of September is also a factor increasing downside rigidity."
To make matters worse, U.S. President Donald Trump nailed down that a $350 billion (about 490 trillion won) investment funds into the United States would be "up front." He also announced additional tariffs on pharmaceuticals and other items. The won-dollar exchange rate in the Seoul foreign exchange market broke through the 1,410-won level.
Lee Jae-won, a researcher at Shinhan Investment & Securities, said, "Trump's 'up front' remark fuels doubts about the 'negotiations so successful that no written agreement is needed' claimed by the Korean government and is a major cause of the won's weakness," adding, "It is also a driver that could trigger foreign capital outflows from the Korean stock market."
With additional talks between South Korea and the United States deadlocked and strong buying unlikely ahead of a long holiday, the market is more likely to remain sluggish for the time being.
Yoo Myung-gan, a researcher at Mirae Asset Securities, said, "After a short-term surge, the KOSPI's 12-month forward price-earnings ratio (PER; market capitalization ÷ net income) has climbed to 11.1 times, so valuation pressure could limit gains in the market until the holiday," adding, "After Chuseok, as we enter earnings season, sectors with positive profit growth will be the favorable choice."