"What Will Happen to Korea?" Foreign Media Express Concerns... "Collapse of Optimism Spreads Investor Despair"

Foreign Media Report Successive Plunges in Korean Stock Market
"Despair and Frustration Spread Rapidly Among Investors"
Younger Generation Increasingly Reliant on Leverage Amid Wealth Gap
"Market Has Become Like a Casino... Difficult to Pull Retail Investors Out"

For the first time in history, both the KOSPI and KOSDAQ markets triggered circuit breakers simultaneously for two consecutive days, prompting foreign media to voice continuous concern and warnings. The international press pointed to excessive leveraged investment and structural imbalances as key reasons behind the crisis, while some compared the current stock market to a “giant casino.”

On the 29th, KOSPI closed at 5663.24, down 360.42 points (5.98%) from the previous session. In the afternoon, the KOSPI index along with the stock prices of Samsung Electronics and SK hynix were displayed in the dealing room of Hana Bank in Jung-gu, Seoul. Photo by Yonhap News Agency

Two Consecutive Days of Circuit Breakers... Unprecedented 'Panic' in KOSPI

On July 29 (local time), Bloomberg reported under the headline “Korea’s Stock Market Plunges 16% in Two Days Amid Retail Sell-Off” that “the KOSPI index has plummeted about 33% this month, the largest drop ever,” adding that “despair and frustration are spreading rapidly among South Korean retail investors.”

Indeed, on this day, the KOSPI closed at 5,663.24, down 5.98% from the previous session, while the KOSDAQ index also fell 6.12% to finish at 662.68. This marks the second straight day of dramatic sell-offs following the previous session’s plunge in the KOSPI (-10.84%) and KOSDAQ (-7.72%). As a result, the KOSPI has collapsed about 40% from its previous high of 9,385.59, recorded on June 19. Similarly, the KOSDAQ index has crashed 46% from its intraday peak of 1,229.42 set on April 27 this year, effectively cutting its value in half.

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This sharp decline led to the activation of circuit breakers in both the KOSPI and KOSDAQ markets for two consecutive days. This marks the 15th activation in the stock market’s history (and the 9th this year), and the 14th activation in the KOSDAQ market’s history (and the 4th this year).

While the KOSDAQ market had triggered circuit breakers for two consecutive days during the 2008 global financial crisis and the 2011 U.S. credit rating downgrade, this is the first time in the history of South Korea’s capital markets that both the KOSPI and KOSDAQ triggered circuit breakers simultaneously for two straight days. Analysts note that the level of volatility in the market is now at a historic high, as 9 out of the total 15 circuit breaker incidents for the KOSPI have occurred this year alone.

AI Bubble and SK hynix Earnings Variables... Optimism Quickly Collapse

Bloomberg pointed out, “The powerful wave of optimism that drove the Korean stock market to the highest levels worldwide at the start of this year has suddenly disappeared.” Doubts are now surfacing about whether the massive investments in the artificial intelligence (AI) industry, which have been underpinning the market, can actually deliver tangible profitability. In addition, apprehension over the rapid technological catch-up by Chinese competitors has sharply dampened investor sentiment.

SK hynix’s second-quarter earnings release was also cited as a factor. Despite strong financial results, SK hynix failed during its conference call to clarify its shareholder return policy or long-term supply contracts, fueling disappointment in the market.

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The plunge has been deeply disruptive to the lives of retail investors. Citing social media, Bloomberg reported that “cases are piling up, from those who lost nearly 40% after investing all their wedding funds in the stock market, to those whose mark-to-market profits of more than 600 million won earlier this week have suddenly turned into losses of 700 million won, leaving investors devastated.”

“The Cruelty of Leverage from Real Estate” ... Young Investor Loses 300 Million Won

Foreign media, eyeing the abnormal collapse of Korea’s stock market, are focusing on underlying social inequality and the surge in real estate prices. One recent report profiled Lee Seungho, 24, who amassed 20 million won during his military service and leveraged it into a peak of 300 million won, only to lose all his principal and gains amid recent market volatility.

In an interview with the media, Mr. Lee said, “I feel that I am living in an era when it is impossible to buy traditional assets like real estate, so I believed investing in stocks was the only ladder for upward mobility,” adding, “the pressure and overwhelming sense of loss are so great that I can barely breathe.”

The international press has observed that the average apartment price in Seoul is now roughly 14 times the annual household income, making it impossible for young Koreans to move up the socioeconomic ladder through labor income alone. As a result, they have no choice but to turn to high-risk, high-leverage investments as the “last ladder” to narrow the wealth gap.

 “Korea’s Stock Market is a Casino—Hard to Pull Retail Investors Out”

The British weekly The Economist has also harshly criticized the abnormal overheating of the Korean market, comparing it to a “casino.” The Economist noted, “It has been a turbulent ride for Korea’s investors.” The main drivers of the Korean market have been the AI boom, along with the assets of Samsung Electronics and SK hynix, and the motivations to invest in successful semiconductor companies were justified.

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However, the magazine raised concerns that the tactics used by investors betting on the index have become increasingly aggressive, likening Korea’s retail investors to “impulsive gamblers.” Citing that Korean investors have poured as much as $10 billion (about 14.6 trillion won) into leveraged exchange-traded funds (ETFs) just this year, it warned of the associated risks.

In particular, The Economist singled out “single-stock leveraged ETFs,” which amplify the swings in share prices of individual companies by several times, as the most dangerous risk bombs. The growing popularity of these extremely high-risk products not only heightens the risk of investor bankruptcy but also distorts overall market volatility and encourages a vicious cycle of plunges.

The Economist predicted, “Korean investors are already too deeply immersed in these alluring yet perilous products. Even if financial regulators step in to tighten regulations, it will be difficult to pull Korean investors out once they’re inside the ‘casino’.”

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