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The KOSPI finished the day at 2,441.55 on Monday, Aug. 5, 2024, after falling 234.64 (8.77%) compared to the previous trading day. Traders are seen in the KB Kookmin Bank dealing room in Yeouido, Seoul, on Aug. 5. (Yonhap)

Amid talk of an AI bubble and fears of a US recession, South Korea’s domestic stocks plummeted. The KOSPI fell at a rate unseen since the 2008 financial crisis, making for the largest percentage drop in the index’s history. The KOSDAQ fell below the 700 mark. The fear and paranoia that hit the New York Stock Exchange on Friday has been exacerbated by a rapid unloading of “carry trades” (borrowing in a currency with low interest rates and investing in higher-interest assets elsewhere). Consequently, massive amounts of capital are leaving the market. The perfect storm has arrived on Korean shores. A whopping 235 trillion won (US$171.35 billion) of the stock exchange’s market cap evaporated on Monday. 

On Monday, the KOSPI fell 234.64 points compared to the previous day, closing at 2,441.55. This is the first time that the KOSPI has fallen over 200 points in a single day — from closing bell to closing bell. The rate of decline was also the largest we’ve seen in 16 years, since Oct. 16, 2008 (-9.44%), at the height of the financial crisis. 

This is likely the result of the added residual shocks from the COVID-19 pandemic. During trading hours, the index fell by as much as 10.81%, dipping below the 2,400 line. Fortunately, the index recovered above 2,400 before the closing bell. The KOSDAQ fell 11.3% and closed the day at 691.28. Both indexes lost all the gains of this year within a single day.  

The stock market was leveled on Monday — irrespective of industry and market cap. Shares of Samsung Electronics, often considered the bellwether of the Korean markets, fell 10.3% to 71,400 won (US$52). Among other top players, SK Hynix fell 9.87%, Hyundai Motor Company fell 8.2%, Kia fell 10.08%, KB Financial Group fell 7.69%, and POSCO Holdings fell 11.78% — all exhibiting rather steep inclines. 

Among KOSPI stocks, 403 saw new 52-week lows at the closing bell; KOSDAQ saw 957, for a total of 1,360. Among the 2,699 stocks listed on domestic exchanges, over half saw their lowest prices within the past year. Foreign investors dumped over 1.5 trillion won (US$1.09 billion) of KOSPI shares to lead the decline. 

From the morning bell onward, institutions made various attempts at damage control, but to no avail. The Korea Exchange activated a sidecar that halted program trading for five minutes for both the KOSPI and the KOSDAQ, but both indexes fell over 8%. In the afternoon, circuit breakers were activated. Circuit breakers are emergency-use regulatory measures that temporarily halt trading. The circuit breaker halted all trading for 20 minutes for the first time since March 19, 2020.

Stocks in key Asian markets fell in unison. Japan’s Nikkei 225 index fell 12.4%, closing the day at 31,458.4. Japan’s stock market saw the largest percentage drop in its history on Monday. Taiwan’s TAIEX index fell 8.35% to close the day at 19,830.88, also making for its largest rate of decline. 

As investors seek to avoid high-risk assets, the interest rates for three-year treasury bonds fell 0.133% compared to the previous day, closing the day at 2.806%. This was the lowest interest rate for the asset class in two years and four months. 

By Nam Ji-hyeon, staff reporter

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