After struggling since July, the KOSPI jumped more than 17% intraday on the 31st, marking the biggest gain on record. Investors are putting forward an optimistic outlook that this rebound is a "signal flare for a trend reversal," but market experts said it instead revealed the weakened stamina of the domestic market. Given that the vulnerable structure that whipsaws on foreign flows has been confirmed, some noted that this rebound could end up as a "dead cat bounce (a brief rebound after a plunge)."
◇KOSPI "gap up" on strong foreign buying
According to the Korea Exchange (KRX) on the 31st, the KOSPI closed at 6,595.45, up 1,001.89 points (17.91%) from the previous trading day. SK hynix(000660), whose market cap exceeds 1,000 trillion won, as well as SK Square and Samsung Electro-Mechanics, closed at the upper limit (the top of the daily price band). Samsung Electronics also surged 28%, reclaiming the 260,000 won level.
The market opened with a "gap up" that day. In early trading, the "static volatility interruption (VI)" was triggered for Samsung Electronics, SK hynix, and other large-cap names. As soon as the two-minute call auction ended, the index, which had been around the 5,600 level, quickly jumped by 1,000 points to the 6,600 level.
Foreign buying was strong. In just over two minutes after the open, foreigners were net buyers of 1.6 trillion won. Over the course of the day, foreigners bought 7.18 trillion won, the largest net purchase on record. Individuals were net sellers of 8.2 trillion won, the largest net selling on record.
◇Market stamina runs dry… foreigners' short covering hits an "empty house" market
Investor sentiment improved as U.S. stocks finished higher overnight. Situational Awareness, an artificial intelligence (AI) hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, faced a margin call, and Citadel took over $16 billion worth of stock positions.
As a result, the view spread in the market that forced liquidations (deleveraging) centered on AI semiconductor names had effectively ended. The Philadelphia Semiconductor Index (SOX) jumped 8.19%, logging the biggest gain in a year and three months since Apr. 9, 2025 (18.73%).
Some analysts said foreigners' short covering (closing short positions) also contributed to the sharp rebound. An executive at an asset management firm, who requested anonymity, said, "As the government signaled it would implement regulations on single-stock leveraged ETFs starting on the 31st, the view spread among foreign hedge funds and global investors that tens of trillions of won in forced selling would hit the market before implementation, prompting preemptive short positions and an excessive widening of the market's decline," adding, "From the implementation date today, the perception spread that deleveraging had effectively ended, and short covering to close short positions, combined with foreign buying, led to a sharp rebound."
A vacuum in sell orders amplified the rise. Lee Chae-won, chair of Life Asset Management, said, "During the recent plunge, with intraday declines reaching 18%, most of the supply from so-called 'weak hands' driven by stop-losses and forced sales was absorbed, sharply reducing the remaining sell orders on the market," adding, "After that, short covering and foreign buying flowed in, but with too few sellers to meet them, bid prices rose rapidly, resulting in a sharp jump in stock prices."
Valuation (stock price level relative to corporate earnings) appeal was also high. The 12-month forward price-earnings ratios (PER) of Samsung Electronics and SK hynix fell to the 3–4x range. That is lower than during the global financial crisis, and the prevailing view is that they are extremely undervalued. PER is the stock price divided by earnings per share (EPS), an indicator of how expensive or cheap a stock is relative to a company's earnings. A PER of 3x means that if currently expected earnings are maintained for three years, the company could generate earnings equivalent to its market capitalization.
◇Too soon to call a trend rebound
Experts agreed it is too early to judge that the market has entered a full-fledged uptrend based on a single day's surge. They said this was merely a result of a technical rebound following a short-term plunge coupled with bargain hunting, and that further confirmation is needed to determine whether a true trend reversal is underway.
Another executive at an asset management firm, who requested anonymity, said, "With year-to-date returns down by nearly 50%, a technical rebound that retraces roughly half the drop may have occurred," adding, "As the valuations of Samsung Electronics and SK hynix moved into an extremely undervalued zone, if value investors' buying flows in, the incentive to maintain short positions diminishes. As a result, moves to unwind short positions also appear to have magnified the rebound."
Lee said, "It is still hard to conclude whether this rebound is a temporary technical bounce or the starting point of a trend upcycle," adding, "Ultimately, the key is the semiconductor cycle. Since the market questions whether high operating margins can be sustained, investors should make decisions over the next six months while checking whether semiconductor bottlenecks will persist even after 2028."
There is also an outlook that the market could remain range-bound in a "W-shaped" box as trust erodes amid sharp swings. During surges, single-stock leveraged ETFs and ultra-short-term trading spread, entrenching a culture of chasing short-term gains, while during plunges, a rise in investors experiencing large losses in a short time strengthened the tendency to view stocks as a "risky asset" rather than a long-term investment target. Ultimately, when the index reaches certain levels, selling could pour in and act as a constraint on gains.
Another official at an asset management firm said, "Many retail investors have entered the market through high-frequency and leveraged trades, so their long-term orientation is weak," adding, "Retail investors trapped at current highs are highly likely to dump profit-taking shares when the index nears the previous high of the 8,000–9,000 level, restraining the uptrend." In fact, retail investors dumped 8 trillion won worth of shares that day to take profits.