‘Black October’
As trade tensions between the United States and China escalates and a continuous increase in the U.S. Interest rates fuels uncertainty, South Korea’s major companies are seeing their performance get worse and the South Korean stock market have been crashing every day.
As foreign investors continued to sell off their stocks in the South Korean market, the benchmark KOSPI and secondary KOSDAQ index showed the largest monthly drop in October after the global financial crisis in 2008. The South Korean stock market, which posted the sharpest decrease among major countries, lost 261 trillion won (US$228.45 billion) of market capitalization in October alone.
According to the Korea Exchange (KRX) on October 28, the KOSPI closed at 2,027.15 on Oct. 26, down 315.92 points, or 13.48 percent, from the beginning of October. The KOSDAQ index also fell 159.20 points, or 19.36 percent, to 663.07. The market capitalization of the KOSPI decreased about 209.85 trillion won (US$183.68 billion) over the same period, while that of the KOSDAQ went down 51.53 trillion won (US$45.1 billion). In other words, 261.38 trillion won (US$228.78 billion) of market capitalization had evaporated in the domestic stock market over the last month.
The steep decline in the domestic market this month compares to the 23.13 percent drop in October 2008 during the global financial crisis and the 27.75 percent plunge in October 1997 during the Asian Financial Crisis, known in South Korea as the “IMF Crisis.”
The South Korean stock market also has the steepest pace of decline in October among other major stock markets in the world. In particular, the decrease of 19.36 percent in the KOSDAQ index is the highest among 30 major stock price indexes in 27 countries and regions across the world, including G20 countries and Hong Kong. The figure is far higher than -13.78 percent of the Taiwan Stock Exchange TAIEX Index, -12.33 percent of the Argentina Merval Index, -7.89 percent of China's Shanghai Composite Index and -10.05 percent of Hong Kong's Hang Seng Index.
In addition, foreign investors’ continuous selling spree causes concerns over additional market correction. Foreign investors sold off a total of 4.5 trillion won (US$3.94 billion) worth of domestic stocks – 3.79 trillion won (US$3.32 billion) in the KOSPI market and 710.9 billion won (US$622.23 million) in the KOSDAQ market – this month alone. The figure is the biggest after June 2013 when 5.13 trillion won (US$4.49 billion) worth of stocks listed on the KOSPI and KOSDAQ market were sold off and capital left the Asian market as a whole due to concerns over the quantitative easing (QE) program in the U.S.
Considering the fact that the National Pension Service has been constantly reducing its proportion of investment in the domestic market, there is no investor that can fill in the vacuum in demand from foreign capital outflow.
Small individual investors who have been aggressively net selling domestic stocks are shedding tears of agony after the stock market crash. In fact, the prices of the top 10 shares in terms of individual investors’ net purchase from the end of last month to the end of last week plunged 20.7 percent on average. The number of small investors who took out loans to invest in stocks and got into financial difficulties also has greatly increased.
This month, the total asking price of closed trades by securities companies in the KOSPI and KOSDAQ market came to 399 billion won (US$349.23 million), reaching a record high in seven years.