Key facts
- South Korean stocks have dropped for two consecutive sessions.
- The KOSPI index has experienced a significant selloff, extending Tuesday's rout.
- Reduced interest in AI-driven chipmakers is fueling investor losses.
- The government is reviewing market stabilization measures, including tighter regulation of single-stock leveraged ETFs.
- Despite the recent plunge, the KOSPI remains the best-performing major market year-to-date in USD terms.
South Korean stocks continued their sharp decline on Wednesday, with the benchmark KOSPI index dropping as much as 12.6 percent before paring some losses to close down 6 percent. This extended Tuesday's near-11 percent rout, putting the market on course for its steepest monthly drop on record and erasing nearly 40 percent of the index’s value from its peak just over a month ago.
Investors are suffering losses following a sudden market plunge fueled by reduced interest in chipmakers, which had previously enjoyed strong growth driven by AI investments. Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, noted that stocks with the most leverage are falling and expressed difficulty in predicting when the selloff will end.
Under pressure from lawmakers, South Korean Finance Minister Koo Yun-cheol apologized for the introduction of single-stock leveraged exchange-traded funds (ETFs), stating they were not considered carefully enough. He announced that the government is reviewing market stabilization measures, including regulation of these funds, which some analysts blame for increasing leveraged trading. Koo, along with the governor of the Bank of Korea and heads of financial regulators, met to discuss the crisis.
Following the meeting, the Ministry of Finance stated it would immediately pursue further curbs on single-stock leveraged products. These measures include individual investment limits, such as a cap of up to 20 percent of an investor’s total investment amount, higher trading costs to deter excessive activity, and simulated trading requirements. The ministry will also prepare a legal basis for emergency market-stabilization steps.
Despite the recent tumble, the KOSPI is up 41.5 percent in United States dollar terms year-to-date, making it the best-performing major market this year. Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore, observed signs of panic and forced unwinding in Asian technology stocks.