As the KOSPI index crossed the 4,000 mark and set a record high day after day recently, investors looked for a pretext for a correction. It was good that the market was rising, but the pace was too fast. There was also doubt about whether Korea's market was fit to climb a peak it had never stepped on before.
While people were on the fence, bad news burst out first from the United States. Of course, if stocks rise to the world's top levels, there's a good chance it's actually a bubble, they said. There was no way the bubble argument that slammed the U.S. market would not affect our market. On the 5th, the KOSPI index plunged. Early in the session, a KOSPI sell-sidecar was triggered, which kicks in when KOSPI 200 futures fall more than 5% from the previous closing price.
But it seems the ones gripped by fear were only foreigners. In the Korea Exchange's main board that day, foreigners were net sellers of more than 2.5 trillion won, and individuals took in the entire amount foreigners dumped.
Looking at past data, investors who bought stocks that day could expect a profit within a month. Kim Doo-eon, a researcher at Hana Securities, analyzed cases over the past five years when a KOSPI sell-sidecar was triggered and found that it took an average of 21.1 days to recover to the prior level after the sell-sidecar.
Even excluding the exceptionally fast rebound during the COVID-19 pandemic, the previous level was recovered after an average of 26.3 days. The average maximum drawdown during this period was about 11%, they said. There could be additional corrections, but it means a rebound ahead is worth expecting.
The fact that the bad news shaking the market was to some extent anticipated also gave retail investors the "heart of a beast." As for the widely feared "bubble theory," there is still no way to prove its substance, but a famous hedge fund exposed a "short (betting on an index decline)" position, offering a chance for a correction. Concerns that, due to the lingering effects of the long U.S. government shutdown, the Central Bank will not obtain clear data and thus fail to implement appropriate monetary policy, as well as the sharp won weakness, are already factors investors are calculating. Known bad news is no longer bad news.
Experts say the factors that can support gains in the domestic market remain intact. Externally, liquidity is expanding and the economy is in an expansion phase, while Korea's semiconductor export outlook is bright. The government's policy stance to divert funds that had flowed only into the real estate market toward the capital market to buoy stocks also remains firm.
Researcher Kim Doo-eon said, "Considering past recovery patterns, the protagonists of a market recovery were the leading stocks," and advised, "Keep investing in semiconductor names such as Samsung Electronics and SK hynix."