The South Korean stock market is experiencing its most severe two-day collapse since the 2008 financial crisis. The KOSPI index plunged as much as 10% on Wednesday, following a 7.2% drop the day before, triggering circuit breakers and a trading halt. The selloff, led by heavyweights like Samsung Electronics and SK Hynix, is fueled by profit-taking, concerns over AI demand, soaring oil prices, and a wave of margin calls. Authorities have activated a market stabilization fund worth approximately $68 billion as analysts warn the downturn has no clear floor.
South Korean equities faced a historic selloff, with the KOSPI index recording its worst two-day performance since 2008. The market downturn triggered an 8% circuit breaker, halting trading for 20 minutes and erasing gains from the past year.
The collapse is largely driven by plunging shares in market giants Samsung Electronics and SK Hynix, which together constitute nearly half the index. “The decline in the KOSPI can broadly be attributable to the single-name concentration that we see in the Korean markets,” stated Lorraine Tan, Asia director of equity research at Morningstar.
Analysts cite profit-taking after a 75% annual rally and growing concerns that high energy costs could slow AI datacenter adoption. Geopolitical tensions impacting oil prices are also pressuring South Korea’s manufacturing-dependent economy, with regional indexes in Japan and Hong Kong also falling.
A critical factor exacerbating the crash is forced selling from margin calls. Retail investors had heavily bought stocks on credit, with deposits as low as 30-40%. “Local brokers started halting providing margin and we’re seeing retail buy-the-dip much weaker today,” said Shawn Oh, an equity trader at NH Investment & Securities.
Foreign funds sold over $740 million worth of stocks in Wednesday’s morning session alone. The volatility gauge for the KOSPI hit its highest level since March 2020, indicating extreme market stress.
Authorities responded by activating contingency plans, including a market stabilization fund of over 100 trillion won (approximately $68 billion). While some defense and energy stocks rose, the broader market remains fragile. “Moves are too extreme so forecasting feels almost impossible — analysis doesn’t really help,” said An Hyungjin, CEO at Billionfold Asset Management.
