With foreign and institutional investors going on a heavy selling spree, the benchmark Korea Composite Stock Price Index (KOSPI) has fallen by 55.61 points or 2.57% to below the 2,100 level, which is considered as a psychological support line, hitting a yearly low once again.
Market experts said that the stock market fell into a panic state as it is seized with fears about a trade war between the United States and China. A bigger problem is that there would be no favorable factors that soothe panic for the time being. What's even worse, there are many worrying factors such as a slowdown in the growth rate of major countries, uncertainty in emerging countries and worsening performance of domestic companies.
South Korean shares nosedived on Oct. 23 as foreign and institutional investors net sold a total of 665.9 billion won (US$585.41 million) worth of stocks. Foreigners offloaded a net 423.8 billion won (US$372.57 million), with institutions selling 242.1 billion won (US$212.84 million) in shares. The figures were the highest after 1.1 trillion won (US$964.66 million) on May 30. The National Pension Service’s decision to stop lending stocks to short sellers from Oct. 22 and collect the already extended stocks by the end of the year seems to have added uncertainty in the market.
In particular, information technology (IT) stocks, which account for a higher share of market capitalization, and biotech stocks, which have a large share of market capitalization and are sensitive to unfavorable factors, were hit the hardest. The KOSPI-200 Healthcare Index dropped as much as 11.05 percent. Machinery, distribution and chemical stocks also decreased 4.39 percent, 3.2 percent and 2.95 percent, respectively. With the stock market showing a sharp decline as a whole, a whopping 216 companies listed on the main KOSPI and secondary KOSDAQ market, including Samsung Electronics, GS and Kolon, saw their share prices reach a new 52-week low. Market behemoth Samsung Electronics plunged to 42,550 won (US$37.41), falling below the 43,000 won mark during the mid-day trading, but barely closed at 43,050 won (US$37.85), down 1.15 percent.
Big players in the stock market scrambled to sell domestic stocks largely due to the trade dispute between the U.S. and China. The market has had expectations for the possibility of U.S. President Donald Trump and Chinaese President Xi Jinping reaching a dramatic reconciliation at the G-20 summit to be held on November 30. However, the hard-line remarks of President Trump contradict such expectations. In addition, tensions between Washington and Beijing escalated once again as the U.S. Navy warships sailed through the Taiwan Strait on Oct. 22. Accordingly, not only the South Korean stock market but also Asian markets, such as Japan, China and Hong Kong, fell across the board.
As the trade dispute has continued for much longer than expected, foreign investors are speeding up “sell Korea.” Foreign investors net sold 2.78 trillion won (US$2.45 billion) worth of stocks on the KOSPI market as of Oct. 23, which was the highest monthly figure this year. The amount of foreigners’ net sale stood at 1.5 trillion won (US$1.32 billion) even when the global stock markets plummeted because of a sharp increase in interest rates of U.S. government bonds in February.
The securities industry seems to have difficulty even in guessing how far the stock market will plunge. Until earlier this month, the 2,100 level had been considered a supporting line of the KOSPI index but it collapsed. Experts agreed that the stock market would not be able to show a rebound for a while. Researcher Kim said, “When the balance of supply and demand improves, it will highlight the attractiveness of valuation and a descriptive rebound can take place at any time. However, the problem is that I can’t see any factors that will bring about the upturn.”
In addition to the trade dispute, the slower growth of major countries and the growing uncertainty on the stock market of emerging countries are also factors that fuel the pessimistic outlook. The expected business showings of domestic companies in the third quarter have been downgraded one after another. Some even predicted that the stock market would continue to be bearish until the first half of next year.