The KOSPI index, which had posted its biggest-ever daily drop on the back of military clashes between the United States and Iran, rebounded nearly 10% in a single day for a dramatic recovery. The KOSPI's gain ranked as the second-largest on record, while KOSDAQ set a curious record by overturning both its biggest-ever daily drop and biggest-ever daily gain within two days.
However, with the index swinging around 10% up or down for three straight days, market volatility appears to have hit a threshold. Among investors, there is relief over the record rebound, but caution remains high that steep declines could recur at any time with geopolitical risks unresolved.
According to the Korea Exchange (KRX) on the 5th, the KOSPI closed at 5,583.90, up 490.36 points (9.63%) from the previous session. Intraday, it climbed more than 12% to break above the 5,700 level.
The day's gain is the second highest on record after the 11.95% rise on Oct. 30, 2008. It is followed by Mar. 24, 2020 (8.60%), Jun. 17, 1998 (8.50%), and Mar. 2, 2000 (8.00%). Most cases appeared in rebound phases after markets were shaken sharply by the global financial crisis or the COVID-19 pandemic.
The KOSDAQ index also finished at 1,116.41, up 137.97 points (14.10%), breaking the all-time No. 1 daily gain record (11.47% on Oct. 30, 2008). Following the biggest-ever daily drop set the previous day, it set the opposite kind of record two days later.
Korea's stock market has extended strong gains this year. In particular, market heat was intense as the KOSPI jumped about 48% between January and February.
Typically, in such bull markets, corrections tend to occur more frequently and with deeper declines.
In the securities industry, with this year's KOSPI earnings forecasts—centered on semiconductor corporations—having been raised quickly since September last year, the view is that the market is highly likely to continue trending upward in the mid to long term.
However, there is an outlook that the market will proceed in a W-shaped rebound, with repeated short-term surges and drops. Looking at correction phases that followed sharp rallies, the maximum drawdown (MDD; Maximum Drawdown) often formed largely between -15% and -23%. MDD is an indicator showing how much a stock or index has fallen from its peak and represents the maximum loss an investor must bear.
As of the 4th, when the biggest-ever daily drop was recorded the previous day, the KOSPI's MDD stood at -19.2%. Compared with past cases, the assessment is that the magnitude of the decline itself has entered, to some extent, the correction range.
Lee Eun-taek, a KB Securities researcher, said, "A 'panic sell' driven by fear like the previous day tends to occur more at price bottoms than at bull-market peaks, and W-shaped rebounds were more common than V-shaped ones."
Lee added, "What matters in a plunge phase is the market's fundamentals," and analyzed, "In an expansion phase, the KOSPI's decline is typically capped around -20%. To fall further, the economic cycle would have to turn down. That is not the current phase."
Experts advised that in a market showing a W-shaped rebound, a staggered buying strategy is effective.
Kim Yong-gu, a Yuanta Securities Korea researcher, said, "We need to watch how the Iran situation unfolds, but near the early 5,000 level on the KOSPI, a holding strategy is preferable to dumping, and buying is better than sitting on the sidelines."
When the market reacts sensitively, it can instead be used as a chance to reorganize portfolios. On this, Yuanta Securities Korea suggested building strategies focused on leading stocks in semiconductors, IT hardware, displays, and securities sectors.