The KOSPI index plunged 10%, giving investors a nightmare Tuesday. As panic selling centered on Samsung Electronics and SK hynix erupted, the KOSPI fell by more than 900 points. By the magnitude of the decline, it was the largest ever, with a bigger drop than on March 4, when the United States and Iran went to war.
As the KOSPI index sank 9.99%, a sell-sidecar and circuit breaker were triggered in succession. The KOSDAQ index, which fell nearly 8%, dropped below the 900 level and a sell-sidecar was activated.
On the 23rd, the KOSPI index closed at 8,203.84, down 9.99% (910.71 points) from the previous trading day. The KOSDAQ also finished at 891.52, down 7.94% (76.88 points). Starting above 9,000 points, the KOSPI briefly turned higher right after the open but soon reversed lower and surrendered the 9,000 level. The loss then deepened, knocking it down to the 8,200 level.
Foreign investors and institutions dumped shares en masse. In the Korea Exchange main board, foreigners sold about 5.8 trillion won and institutions about 5.5 trillion won. Individuals, by contrast, went on a record net-buying spree. Individuals bought more than 11 trillion won. In particular, Samsung Electronics and SK hynix fell more than 12%.
Regarding the stock market plunge, the seouri ties community largely viewed it as a possible technical correction after the recent sharp run-up in indexes. In particular, as most tech stocks fell in the U.S. market the previous day, investor sentiment toward domestic stocks also weakened.
Cho A-in, a Samsung Securities researcher, said, "Investor sentiment weakened as big tech stocks fell last night," and noted, "As large-scale fund-raising moves by recent artificial intelligence AI corporations continue, doubts about the profitability of AI investment have resurfaced."
Lee Jae-won, a Yuanta Securities Korea researcher, said, "As can be seen in the favorable flow of Asian stock markets, macro indicator volatility is also benign, and there have been no sharp swings in interest rates or oil prices," adding, "The cause of the correction is the release of profit-taking supply in large-cap semiconductor stocks and a technical adjustment."
Lee said, "I do not judge that any issues have been found in fundamentals or macro that would damage the KOSPI's uptrend," and analyzed, "Because this is the release of profit-taking supply that has always followed the breakouts through the 5,000–8,000-point ranges, it should be used as a buying-the-dip opportunity." Lee added that the magnitude of the drop is only average when considering the increased market capitalization.
There was also analysis that the change the previous day (on the 22nd), when SK hynix overtook Samsung Electronics in market capitalization to take the top spot, influenced the panic selling. Kim Dae-joon, a Korea Investment & Securities Co. researcher, said, "Today's plunge was driven by panic selling triggered by short-term overheating pressure," adding, "It is easy for concerns about overheating to be stoked when a corporation with smaller profits than the previous No. 1 takes the lead."
Some also attribute it to a "short gamma" phenomenon caused by single-stock leveraged exchange-traded funds (ETFs). They say the daily rebalancing structure of leveraged ETFs is almost the same as short gamma.
Kim Seok-hwan, a Mirae Asset Securities researcher, said, "It appears to be less a problem with fundamentals than a build-up of technical correction pressure," and explained, "From a liquidity standpoint, we have emphasized short gamma, which fuels leverage effects in both rising and falling phases."
There is also analysis that a comment from political circles that "unrealized gains on stocks and real estate should also be taxed" negatively affected the market.
At a forum titled "Seeking a shift to comprehensive income taxation and closing tax gaps on asset income" held at the National Assembly Members' Office Building in Yeouido on the day, Lee Sang-min, a senior research fellow at the Korea Institute of Public Finance, noted, "If taxation occurs only at the time of realization, taxpayers have an incentive not to sell assets to avoid or delay taxes, creating a lock-in effect," and pointed out, "This prevents capital from moving to more efficient places."