Wave of Investment Warnings Amid Samsung Electronics Strike Risk... Warning Signs Flash as KOSPI Nears 8,000 Points

Samsung Electronics Faces Strike Threat as KOSPI Pauses for Breath
Investment Warnings in Bull Market Surpass 70% of Last Year’s Total in Just Four Months
Concerns Over a 'Correction Leading to Forced Selling' Cycle May Be Overstated

The KOSPI, which had climbed close to the 8,000 mark, has paused for breath. The market is under downward pressure from signs of overheating, such as the potential for a strike due to failed labor negotiations at Samsung Electronics and a surge in investment warnings. While concerns are being raised over excessive volatility and so-called "investment with borrowed money," analysts believe the possibility of a stock market crash driven by large-scale forced selling, as seen in the past, is relatively low.

A dealer is working in the dealing room at the headquarters of Hana Bank. Photo by Yonhap News Agency

On May 13, the KOSPI opened at 7,513.65, down 1.69% from the previous trading day, and as of 9:50 a.m., it was trading at 7,485.17, down 2.07%. Notably, Samsung Electronics saw a significant decline due to the increased likelihood of a general strike following the breakdown of labor-management negotiations over performance bonuses. Samsung Electronics was trading at 2,675,000 won, down 4.12% (115,000 won) from the previous session. At the same time, the KOSDAQ was trading at 1,158.58, down 1.76%. The won-dollar exchange rate opened at 1,493.8 won, up 3.9 won from the previous session, and was trading at 1,495.4 won.

Overnight, the New York stock market showed mixed results due to inflation concerns and profit-taking in semiconductor stocks. On May 12 (local time), the Dow Jones Industrial Average closed at 49,760.56, up 56.09 points (0.11%) from the previous session. The Standard & Poor's (S&P) 500 Index closed at 7,400.96, down 11.88 points (-0.16%), while the tech-heavy Nasdaq Composite ended at 26,088.20, down 185.92 points (-0.71%). Semiconductor stocks, which had led the recent rally, drove the decline in the indexes. Micron (-3.61%), Qualcomm (-11.46%), Intel (-6.82%), SanDisk (-6.17%), and Western Digital (-5.25%) all fell.

Meanwhile, the number of stocks designated for investment warning this year is expected to reach a 10-year high. According to the Korea Exchange, from January to May 11, a total of 250 investment warning designations were made on the KOSPI and KOSDAQ. This figure has already surpassed 70% of the annual totals for 2020 (352 cases) and last year (348 cases)—years marked by the "Donghak Ant" retail investor boom—in just over four months. By month, there were 55 cases in January, 47 in February, and 49 in March, before surging to 80 in April. This month, 19 cases have been recorded in just five trading days.

By market, Daewon Cable and LS Eco Energy were designated as investment warning stocks on the KOSPI this month. This was due to speculative demand pouring into power equipment stocks as the global expansion of artificial intelligence (AI) data centers coincided with the cycle of replacing aging power grids. On the KOSDAQ, optical communication-related stocks such as Lycom and Wooriro were designated. This is seen as a result of market interest focusing on next-generation transmission technologies that can overcome the limitations of existing copper wires, amid the surge in data traffic driven by the spread of AI.

The market surveillance system is a mechanism by which the exchange issues investment risk alerts for stocks where trading is concentrated in a small number of accounts or where prices surge over a certain period, indicating the potential for unfair trading. Depending on the level of risk, alerts are categorized into three stages: investment caution, investment warning, and investment risk. If a stock designated as an investment warning continues to surge, trading may be suspended. For investment risk stocks, trading is suspended for one day on the day of designation.

The sharp increase in investment warning stocks is a result of large inflows of capital into the stock market. After the KOSPI surpassed 6,000 points at the end of February, both idle funds waiting to be invested in the market and margin-based investments increased. According to the Korea Financial Investment Association, as of May 11, investor deposits stood at 134.0987 trillion won, up 22.49% from 109.4676 trillion won on February 25. Over the same period, outstanding margin loans rose 12.03% from 32.134 trillion won to 35.9985 trillion won.

However, the growth in margin balances has lagged behind the rise in KOSPI prices, leading to the assessment that the actual risk from leveraged investments is not significant. According to Kiwoom Securities, between April and May 8, the KOSPI rose 48%, while margin balances increased by only 10%. For semiconductor stocks, which have led the market, share prices soared by 78%, but margin loan growth was limited to just 1%, indicating a very stable trend. Other key AI value chain stocks, such as IT hardware and power equipment companies, also have low credit risk, making it unlikely that overall index declines will be driven by margin calls in the near future.

Han Jiyoung, a researcher at Kiwoom Securities, said, "The absolute increase in margin balances does create an environment that can superficially raise concerns about speculative overheating," but added, "Even in the midst of a record-breaking bull market, the surge in margin balances has been limited." She continued, "There have been supply-side constraints such as brokerage firms' limits on margin credit and management of margin ratios, while on the demand side, investors have favored cash purchases or ETFs in a large-cap market, reducing reliance on margin loans. As a result, the vicious cycle of 'market correction→leveraged position liquidation→additional index declines due to forced selling' is not as serious as feared."

This content was produced with the assistance of AI translation services.