Daishin Securities said the stock market has shown a statistically significant rebound after a circuit breaker was triggered on the KOSPI market.
According to Daishin Securities, an analysis of past KOSPI circuit breaker cases found that, on average, the index rebounded 9.9% after 32 trading days from the trigger. Around 60 trading days, it logged a gain close to 20%.
On the 4th, the KOSPI closed at 5,093.54, down 698.37 (12.06%) from the previous trading day. As an intraday drop of more than 8% persisted for over one minute, a circuit breaker was triggered, halting transactions for 20 minutes. This was the eighth case on record.
Jeong Hae-chang of Daishin Securities said, "Historically, KOSPI circuit breakers have generally appeared near psychological bottoms," and noted, "The intraday low of 5,059 recorded on the 4th equates to a price-earnings ratio (PER) of 8.06 times, an excessively compressed valuation zone."
Jeong said, "If Iran and the United States enter negotiations in March or an exit strategy becomes visible, the market will resume a recovery trend based on earnings and fundamentals," and added, "Given the recent uptrend in EPS and the lower valuation, a continuation of the rebound phase is likely."
Looking at past cases, the KOSPI mostly rebounded the day after a circuit breaker was triggered. The case on Mar. 13, 2020, was an exception. After that, the index rebounded an average of 9.9% over 32 trading days and about 20% around 60 trading days.
A similar pattern was observed during sharp declines caused by geopolitical shocks such as wars. By the time 20 trading days had passed after the outbreak of war, the index rose an average of 3.6%, returning to a recovery trajectory. In the short term, declines continued up to 10 trading days in cases such as the 9/11 attacks, the Israel-Lebanon war, and the Russia-Ukraine war, but a rebound trend was observed starting on the 20th day.