Index falls from June intraday high of 9,385.59 to 5,554.22; circuit breakers triggered on both major exchanges.
JPMorgan and HSBC maintain "overweight" ratings while warning of a lack of catalysts for dip-buying and short-covering.
As the KOSPI index falls more than 40% from its all-time high, global investment banks (IBs) are showing a divergence in their assessments of the Korean stock market. While they remain bullish on the long-term growth potential centered on artificial intelligence (AI) semiconductors, they are maintaining a cautious stance on the market liquidity and supply-demand conditions needed to support a short-term recovery.
On the 15th, the KOSPI closed at 5,554.22, down 454.59 points (7.57%) from the previous trading day. The KOSDAQ also saw a sharp decline, ending the session at 760.82, down 63.06 points (7.65%).
During the session, both markets plunged by more than 8%, triggering Level 1 circuit breakers. The Korea Exchange halted trading on the KOSDAQ at 12:23 PM and the KOSPI at 12:38 PM, each for a period of 20 minutes. Earlier in the morning, sidecar measures were also activated for both markets to curb the rapid sell-off.
The KOSPI hit an intraday all-time high of 9,385.59 on June 19; by the close of the 15th, it was 40.82% below that peak—a decline of 3,831.37 points in approximately four months. Compared to the previous closing high of 9,114.55 on June 22, the index has fallen 39.06%.
Samsung Electronics and SK hynix led the downward trend, falling 9.48% and 11.06%, respectively. Even as earnings growth forecasts for semiconductor firms remain intact, uncertainties surrounding AI investment profitability and global capital flows continue to weigh heavily on share prices.
Goldman Sachs Highlights Severity of Sell-Off; Foreign Exodus Continues
Goldman Sachs characterized the recent string of losses and the cumulative drop in the KOSPI as significantly exceeding a typical correction. Citing comparisons to the early days of the COVID-19 pandemic in 2020 and the U.S. credit rating downgrade in 2011, the firm noted that such sharp, prolonged selling without a technical rebound is rare in the past two decades.
Foreign net selling has persisted throughout the year. According to the Korea Exchange, foreign investors have net-sold 204.879 trillion won in the KOSPI market as of the 14th. During the same period, retail investors net-bought 100.171 trillion won and institutions net-bought 39.061 trillion won. Despite the efforts of domestic investors, they proved insufficient to absorb the sheer volume of foreign liquidation.
The foreign sell-off continued on the 15th. Even with significant buying from domestic retail and institutional investors, the index plunged over 7%.
Selling pressure was particularly concentrated on semiconductor heavyweights like Samsung Electronics and SK hynix. While projections for rising memory prices and tight high-bandwidth memory (HBM) supply remain in place, skepticism is growing over whether the massive capital expenditure funneled into AI infrastructure will ultimately translate into real profitability.
Maintaining "Overweight" Despite the Plunge: Focus on AI Semiconductor Earnings
In its Asian thematic strategy report titled "Why AI remains foremost," released on the 12th, JPMorgan maintained its "overweight" rating for both the South Korean and Taiwanese stock markets.
JPMorgan estimates that AI-related stocks account for over 50% of Asian equity indices and will contribute approximately 70% of profit growth for Asian corporations by 2027. It further projected that the supply shortage in core AI hardware—including advanced logic semiconductors, advanced packaging, semiconductor equipment, and HBM—would persist until at least 2028.
South Korea holds a competitive edge in memory and HBM, while Taiwan excels in advanced logic chips and packaging. JPMorgan posits that as long as AI investment drives sustained demand for semiconductors, these companies will be able to expand production capacity and maintain pricing power.
HSBC Private Bank also maintained a moderately "overweight" stance on Korean technology stocks in its September investment outlook, citing memory supply constraints and corporate earnings growth as the primary drivers. Korea was included as one of the preferred global stock markets in its Q4 investment outlook as well.
The rationale for these firms' positive long-term outlook is corporate performance. They argue that even if stock prices have corrected sharply, the potential for earnings growth remains as long as AI semiconductor supply shortages continue.
Shortage of Dip-Buying and Short-Squeezes: Conditions for Foreign Return
Two days later, a separate strategy team at JPMorgan adopted a more cautious stance regarding a near-term rebound. The Global Markets Strategy team, led by strategist Nikolaos Panigirtzoglou, warned in a report titled "Flows & Liquidity" released on the 14th that the current correction in AI infrastructure stocks is occurring in a less favorable liquidity environment compared to past sell-offs.
The report noted that in previous corrections, retail investor dip-buying and the liquidation of short positions helped catalyze a rebound. This time, however, buying via ETFs tracking Korean stocks has been limited, and short interest remains low, making it difficult to expect a similar effect.
Short positions in EWY, a U.S.-listed ETF tracking the Korean market, have shown little change since the start of October. Similarly, short positions in U.S. memory firms and major semiconductor ETFs remain at low levels. Consequently, even if prices rebound, the "short-squeeze" effect—where investors buying back stock to cover shorts drives the price higher—is expected to be limited.
Leveraged ETFs were also cited as a risk factor, as market volatility may trigger forced selling during the rebalancing of leverage ratios.
The fact that domestic retail investors are net-buying in the spot market is distinct from the lack of ETF-driven inflows noted by JPMorgan. JPMorgan’s analysis focuses on capital flows in overseas-listed ETFs and short-interest levels, rather than the aggregate trading behavior of domestic retail investors.
Changes in portfolio weighting are also evident in JPMorgan Asset Management’s Korea equity funds. The combined weight of Samsung Electronics and SK hynix decreased from 22.66% at the end of July to 18.58% by the end of August. Specifically, Samsung Electronics fell from 10.91% to 8.80%, while SK hynix dropped from 11.75% to 9.78%.
Because these weightings are influenced by shifts in stock prices and the valuations of other assets, these figures do not provide a clear picture of actual liquidation volumes, nor can the late-August data be directly linked to foreign sell-offs on the 15th.
JPMorgan’s two reports reflect different investment horizons: the 12th report focuses on the long-term earnings potential of AI semiconductor firms, while the 14th report focuses on the current lack of buying momentum needed to sustain a short-term recovery.
Domestic securities firms are keeping a close watch on corporate earnings and external uncertainties for signs of a turnaround in foreign flows. Hyundai Motor Securities identified the end-of-October earnings releases for Samsung Electronics and SK hynix, as well as the U.S. midterm elections on November 3, as key turning points.
Kim Jae-seung, a researcher at Hyundai Motor Securities, noted that geopolitical risks in the Middle East and uncertainty surrounding the U.S. elections are currently limiting foreign risk appetite, suggesting that uncertainty may ease after the polls.
Hana Securities highlighted that in past KOSPI bull markets, U.S. manufacturing data, inflation, and the interest rate spread between South Korean and U.S. government bonds served as leading indicators for foreign buying. Historically, the U.S. Institute for Supply Management (ISM) Manufacturing Index has led by approximately one month, core Personal Consumption Expenditures (PCE) inflation by five months, and the 10-year Korea-U.S. bond spread by two months.
However, these historical lead times are not guaranteed. Judging the timing for a reversal in foreign buying requires an integrated assessment of corporate earnings, interest rates, exchange rates, and broader financial conditions. While the "overweight" consensus remains, translating that sentiment into immediate foreign buying remains a different challenge for global IBs.
