South Korean stocks tumble 10% from record, triggering trading halt

By Youkyung Lee and Sangmi Cha

 

South Korean stocks tumbled from a record high as investors sold off chip heavyweights on renewed concern that the rally has become overstretched.    

 

The Kospi closed down 10%, with losses extending after a 20-minute trading suspension by the Korea Exchange. SK Hynix Inc. and Samsung Electronics Co. both slumped more than 12%.  

 

The pullback underscores the growing volatility of what has been the world’s best-performing major equity gauge this year. Leveraged exchange-traded funds tied to the chipmakers have amplified price swings, prompting the top financial watchdog to express regret having allowed the risky products.  

 

 

“After an extended momentum driven rally, the Korean market has become increasingly sensitive to shifts in retail investor sentiment, particularly as attention has turned to leverage in the retail base,” said Gary Tan, a portfolio manager at Allspring Global Investments. Such moves are often amplified by liquidity and derivative positioning, he added.  

 

Sentiment over high-flying tech stocks turned wobbly in US trading Monday with SpaceX shares sliding and attention shifting to memory chipmaker Micron Technology Inc.’s quarterly results later this week. Investors also focused on a local media report that SK Hynix is adjusting the pace of expansion of its HBM4 mass production and stepping up efforts in the commodity DRAM market. 

 

The stock market has shown several signs of being overheated in recent days. SK Hynix shares had gained more than 2% for eight straight days, extending its rally for the year to nearly 350% earlier this week. Retail investors have increased the use of leverage. Margin debt, or borrowing to buy stocks, rose to a record 38.5 trillion won ($25 billion) this month, according to Korea Financial Investment Association data.    

 

“It looks like forced liquidation kicked in around 2 to 3 p.m., with sell orders accelerating the downside,” said Kim Namho, a fund manager at Timefolio Investment Management in Seoul.

 

Foreign investors sold nearly 5 trillion won of Kospi shares on Tuesday, while retail traders added a record 7.9 trillion won of positions. 

 

A volatility gauge tracking Korean stocks rose to near 90, marching toward its early-June peak. Officials are weighing stabilization steps to limit the potential fallout from sharp swings in ETFs tracking Samsung Electronics and SK Hynix, Financial Supervisory Service Governor Lee Chan-jin said in a briefing Monday.   

 

“The selloff appears to be driven mainly by profit-taking after the recent sharp rally, as the market had become increasingly overbought,” said Ha SeokKeun, chief investment officer at Eugene Asset Management in Seoul. “Elevated retail leverage and margin balances have likely amplified the decline, making the market more sensitive to negative catalysts.”