South Korean stocks dropped for a second consecutive session on Wednesday, with Seoul’s equity market losing roughly $2.18 trillion in value and heading for its steepest monthly decline on record.
The benchmark KOSPI index fell as much as 12.6% before trimming losses to close down 6%, extending Tuesday’s near-11% rout.
The slide has erased almost 40% of the index’s value from a peak reached little more than a month ago.
What triggered the rout
The plunge was fueled by fading investor interest in chipmakers, which had previously ridden strong growth driven by artificial intelligence investments.
Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said:
“If you look at what is falling in the market, it has been the stocks in which you have the most leverage. It’s very difficult to say when will this selloff end, but at the moment, it’s definitely not the trade where we want to be.”
Government response
Finance Minister Koo Yun-cheol apologised during a parliamentary session for the introduction of single-stock leveraged ETFs, admitting they had not been considered carefully enough.
Koo, the Bank of Korea governor, and financial regulators met late Wednesday to discuss the crisis, two weeks after tightening regulations on July 16.
The Ministry of Finance said it would immediately pursue further curbs on single-stock leveraged products, including individual investment limits capped at up to 20% of an investor’s total, higher trading costs, and a legal basis for emergency stabilisation steps.
Regional contagion
Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore, said:
“There [were] definitely signs of panic and forced unwind in Asia technology today, not only on the long side, but also on the short side in Japan.”
Despite the tumble, the KOSPI remains up 41.5% in US dollar terms year-to-date, making it the best-performing major market this year.
