Kospi Plunges Over 6% Despite Samsung's Earnings Surprise, Sidecar Triggered
The Kospi fell as much as 6% intraday, hitting a session low near 7,458 points, while the Kosdaq dropped about 3% to around 820. Foreign investors net sold roughly 2.7 trillion won on the Kospi, and institutions also turned net sellers, though pension funds continued modest buying. The won traded around 1,525 per dollar.
Samsung Electronics and SK Hynix each fell about 9%, driving most of the index decline. Foreign net selling extended to a 13th straight session, with cumulative outflows since the start of the year estimated at roughly 190 trillion won. Daily selling had eased to under 2 trillion won in early July, but foreigners sold more than 2 trillion won again on this day, reigniting the outflow.
Panelists argued the drop stemmed from structural supply-demand dynamics rather than any deterioration in fundamentals. Japan's Nikkei fell about 1.2%, Taiwan was flat, and Hong Kong's Hang Seng dropped roughly 1% over the same period — underscoring that Korea's decline was disproportionate. They attributed the root cause to heavy index concentration, with Samsung Electronics, SK Hynix and related large caps accounting for more than half of Kospi market cap.
Leveraged ETFs were flagged as amplifiers of the decline. To maintain their target multiple, these funds must mechanically buy more when prices rise and sell more when prices fall. A drop in either Hynix or Samsung triggers a chain reaction across semiconductor sector ETFs, large-cap ETFs, and overseas-listed products tracking Korean indices. Global leveraged ETF net assets have grown 82% year-over-year, a factor cited as fueling this volatility.
The Wall Street Journal warned that Korea's stock market could become a 'Squid Game,' citing concentration risk in Samsung and Hynix, volatility amplified by leveraged products, and foreign capital outflows. Panelists acknowledged the point but stressed that circuit breakers being triggered twice in a single month is abnormal and requires structural fixes from regulators and the industry. They noted lawmakers are already discussing curbs on leveraged products and a temporary pause on National Pension Service rebalancing.
As a strategy for this volatile phase, panelists recommended holding a substantial cash buffer — at least 30%, potentially up to 50% — since a fully invested portfolio cannot respond to sharp drops. Of the remaining equity allocation, they suggested splitting roughly evenly between AI/semiconductor leaders and defensive sectors such as financials, shipbuilding, and defense.