The KOSPI index has fluctuated amid consecutive adverse developments, returning to its January levels. Compared to the annual high of 2,667.07 on Aug. 1, it has declined by 13.7 percent.
On Oct. 26, the KOSPI index closed at 2,299.08, marking a 2.17 percent decline, while the KOSDAQ index concluded at 743.85, down by 3.50 percent. The decline in the KOSPI index on that day exceeded the year's previous largest drop, which took place during the Silicon Valley Bank (SVB) crisis on March 14, when it fell by 2.56 percent.
Both indices have retraced to early-year levels, shedding most of their year-to-date gains. This year, the KOSPI index had enjoyed an 18.2 percent rise from the beginning of the year until the end of July, driven by the surge in secondary battery-related stocks and positive prospects for the semiconductor industry. However, it has been on a consistent downward trend since September. The decline can be attributed to diminishing investor sentiment in secondary battery stocks, as well as a range of adverse factors, including geopolitical uncertainties in the Middle East and the emergence of rising U.S. 10-year treasury yields.
With rising U.S. bond yields and a surging exchange rate, foreigners are exiting the domestic stock market. Over the past four trading days, foreigners have sold a net amount of 1.23 trillion won (US$907.69 million) worth of securities in the KOSPI market.
The sharp drop in the stock market on this day was also triggered by the lackluster earnings outlook for major secondary battery companies that constitute the backbone of the domestic stock market. During a conference call on the previous day, LG Energy Solution cited the slowdown in electric vehicle demand and the global economic downturn as reasons for stating that “next year’s revenue growth rate won’t be as significant as this year’s.” On that day, LG Energy Solution, the second-largest company by market capitalization in the KOSPI market, saw a 2.4 percent decline, and other major secondary battery companies like POSCO Holdings, down by 5.09 percent; LG Chem, with a 6.99 percent drop; and Samsung SDI, down 5.05 percent also faced declines. In particular, the KOSDAQ market witnessed a significant increase in its decline, with the top two companies by market capitalization, EcoPro BM and EcoPro, experiencing respective drops of 6.2 percent and 10 percent on that day, thereby amplifying the overall market downturn.
Park Hyung-woo, a researcher at SK Securities, said, “The slowdown in electric vehicle demand is expanding to numerous manufacturers, and China’s reinforced control of graphite exports is adding to the adverse factors. The strikes by the ‘Big Three’ U.S. automakers are also having a negative impact on the secondary battery industry.”
The prospect of a delayed recovery in the semiconductor industry further fueled the stock market decline. On that day, SK hynix reported an operating loss of 1.79 trillion won for the third quarter. While the operating loss decreased by 1.09 trillion won compared to the previous quarter, it was still considered below market expectations, leading to a 5.8 percent drop in its stock price. Companies in the semiconductor equipment sector, including HPSP with a 12.9 percent drop and Dongjin Semichem with a 6.17 percent decline, also saw decreases in their stock prices. Additionally, the analysis that Google’s cloud business growth has slowed down, coupled with a significant drop in its stock price of over 9 percent the previous day, had a negative impact on the semiconductor sector.
Experts are anticipating that the Federal Open Market Committee (FOMC) meeting on Nov. 2 and the release of the U.S. unemployment rate for October on Nov. 3 will have a significant influence on the short-term movements of the stock market. If the employment figures continue to show strength, concerns about prolonged high interest rates may become even more pronounced. The potential changes in the FOMC members’ interest rate projections will also be closely watched.
Jeong Myung-ji, head of the investment strategy division at Samsung Securities, said, “Through the unemployment rate indicators and the FOMC meeting, we will determine whether the prospect of prolonged high-interest rates is real or not. If the upper limit of interest rates is breached, it is expected that foreign investors’ exodus from the domestic stock market will intensify.”