The KOSPI plunged 8%: the fifth trading halt in a month and a loss of $360 billion — an analysis of the underlying causes
The South Korean stock market is experiencing historic turbulence. The KOSPI index has again plunged more than 8% in a single trading session, marking the fifth forced trading halt in the last month. Over 400 trillion won, equivalent to approximately $360 billion, has "evaporated" from the market. Shares of key giants — Samsung and SK Hynix — each crashed by about 9%.
This is not an isolated episode. Earlier, on June 8, the index fell 8% in the first three minutes of the session, and on June 22-23, the decline reached 10% — the second worst day in KOSPI history. The cause at that time was linked to a proposal to introduce a tax on unrealized profits. Now, however, we are witnessing a systemic crisis, not just a reaction to news.
Five fundamental reasons for extreme volatility
My analysis shows that the current situation is the result of five overlapping structural problems that have been building for years.
First: the retail market structure. In Korea, so-called "ants" — retail investors who trade on the principle of quick entry and even quicker exit — dominate. They turn every dip into a crash and every bounce into a sharp spike. Institutions play a secondary role here, making the market extremely jittery.
Second: critical concentration. Samsung and SK Hynix together account for 45-50% of the entire KOSPI index's market capitalization. For comparison, Nvidia and Apple in the S&P 500 weigh only 14%. Essentially, two stocks control the fate of an entire country. Any movement in them — and the entire market either plummets or soars.
Third: record margin debt. It has reached 32.67 trillion won ($22.4 billion), up 25% year-over-year. Leveraged ETFs on individual Samsung and SK Hynix stocks, approved in May, double the daily movement: a 9% decline turns into an 18% loss for holders. This triggers a cascade of forced selling.
Fourth: the status of the won (KRW). It is not a reserve currency. The Korean won is not part of global reserves, so selling by foreigners hits it harder. It has already fallen to a 17-year low, increasing the cost of imports and limiting the Bank of Korea's ability to cut rates, even amid the stock market crash.
Fifth: the pension fund paradox. Korea's National Pension Service (NPS) holds assets equal to 60% of the country's GDP. But the fund has already exceeded its limit on the share of stocks in its portfolio. Because of this, it is forced to sell on every bounce, instead of buying the dips. It was even selling on the day the trading halt was triggered. This has deprived the market of its last stabilizer.
Loss of the bullish scenario
An additional blow came at the end of June when Korea was not included in the MSCI watch list for an upgrade to developed market status. This deprived the market of the only catalyst for which foreign capital was willing to tolerate volatility.
As a result, we have a retail-driven, two-stock concentrated, leverage-heavy, currency-vulnerable market, lacking a stabilizer and — critically — without a bullish scenario. This is why the index no longer moves by 2%. It fluctuates by 8-10% almost every day. Between crashes, the market bounces just as sharply — in March, it rose nearly 10% in a single day right after a record 12% drop.
My expert opinion: The current situation on KOSPI is a classic example of a "liquidity trap" combined with structural imbalances. Until the market structure changes (reducing the share of retail investors and concentration on two stocks) or a new powerful catalyst emerges (e.g., MSCI rebalancing), we will continue to see these 8-10% movements repeated. Investors should prepare for high volatility and consider hedging through options or diversifying into other markets. The Korean market is currently not for the faint of heart.