The South Korean stock market has plunged to the level of 11 years ago when the global financial crisis happened. The won-dollar exchange rate skyrocketed due to the fears of a trade dispute between the United States and China and concerns over Japan’s decision to exclude South Korea from its trade whitelist. The stock market collapsed as retail investors dumped stocks after foreigners’ large-scale selling spree.
On Aug. 5, 91 percent of the 897 shares listed on the benchmark KOSPI market and 95 percent of the 1,299 shares listed on the secondary KOSDAQ market closed lower. It means that more than nine out of 10 listed stocks saw their prices go down.
The KOSDAQ market was hit harder. Program trading of shares listed on the KOSDAQ market was briefly halted on Aug. 5 as the "sidecar" was activated for the first time in three years and one month since June 24, 2016. Sidecar is a system to alleviate the impact of program trading on the KOSDAQ market by temporarily restricting program trading if the market situation changes rapidly. The market recorded a decline of 7.46 percent, the ninth highest figure in history. Korea Exchange (KRX), the bourse operator, limited program trading for five minutes starting at 2:09:12 p.m. due to fluctuation of KOSDAQ 150 futures price and spot index (KOSDAQ 150).
The collapse of the KOSDAQ market also triggered a heavy fall of biotech shares. The prices of biotech shares plunged on Aug. 2 after SillaJen Inc. announced a halt to the global phase-3 liver cancer trial for Pexa-Vec, an oncolytic viral drug. SillaJen recorded the lower limit for two days in a row, and the prices of other biotech shares also took a nose dive.
The KOSPI market faces a combination of unfavorable factors, including the trade dispute between the United States and China, the trade dispute between South Korea and Japan and valuation risks. Trade tensions between the U.S. and China are flaring once again as China has decided not to import U.S. agricultural products after President Trump recently announced 10 percent tariffs on US$300 billion worth of Chinese goods. In addition, foreign investors’ net sale surged as the exchange rate has skyrocketed because of the weak won and yuan.