(Flash Report) Korean Stocks Fall Sharply

At 11:30, the KOSPI was 5,957.56 (−6.68%). At 11:26, large caps had fallen most at −6.28%, versus midcaps −2.86% and small caps −2.24%. At 11:04, 849 KOSPI stocks had fallen and 55 risen. The KOSDAQ was 809.63 (−4.66%, 11:04).

A sidecar does not halt the market. When futures stay more than 5% away from the previous close for 1 minute, it blocks only computer-generated program sell orders for 5 minutes. Human selling continues. A Stage 1 circuit breaker halts the whole market for 20 minutes at −8%, calculated at about 5,873. The morning did not reach that line.

The trigger unfolded over three days, rather than one. Put the sequence in order: Korea reacted before the US, and took the second hit today.

CXMT is not a large company today. TrendForce puts Q2 DRAM revenue shares at Samsung 39.4%, SK hynix 24.9%, Micron 23.3% and CXMT 9.5% (Counterpoint puts CXMT at 7%). Yet its share rose from 7.6% in Q1 within one quarter; revenue grew 99.3% quarter on quarter. The market feared its catching-up speed more than its current size (interpretation).

CXMT listed in Shanghai on July 27, rising 466% on its first day. The next day, July 28, the KOSPI lost 10.84% (#03); CXMT's stock-market debut and its effect on Samsung/SK hynix flows were cited among the reasons then too (The Segye Times). This is the second “CXMT shock.”

The same news sounded this loud because doubts that memory prices were near the top already lay underneath. Boboo from Sky identified five elements.

Today's trigger was news amplifying existing doubts, rather than new figures. There are still no figures showing memory prices themselves have turned down (interpretation).

There was one seller, foreign investors, and they sold large-cap baskets. By 11:21, foreign investors had net sold KRW 2.3131 trillion on the KOSPI. Individuals (+KRW 1.2740 trillion) and institutions (+KRW 805.6 billion) bought. At 11:30, the totals were foreign −KRW 2.4575 trillion, individuals +KRW 1.3985 trillion and institutions +KRW 807.4 billion (Youth Daily).

The selling pattern reveals its character.

• Basket selling. At 11:04, program trading was non-arbitrage −KRW 1.3100 trillion and arbitrage +KRW 43.8 billion. Non-arbitrage orders trade baskets of stocks. This means selling large index stocks together, rather than trading cash/futures price differences.
• Futures played a supporting role. Foreign KOSPI 200 futures net selling actually narrowed from KRW 253.5 billion at 9:55 to KRW 191.9 billion at 10:43. On 10/12, they net bought 3,009 contracts. Actual reductions in cash equities led the selling, rather than futures hedges.
• They bought KOSDAQ. At 11:04, foreign investors net bought KRW 137.5 billion on the KOSDAQ while individuals sold KRW 164.3 billion. This looks more like a day of exiting large memory stocks than leaving Korea across the board (interpretation).
• Losses concentrated in large caps. Samsung Electronics KRW 231,500 (−7.58%); SK hynix KRW 1,467,000 (−8.60%, 11:04). Intraday lows were Samsung −7.88%, SK hynix −9.22%. Semiconductor-linked stocks fell more: SK Square −11–12%, Hanmi Semiconductor about −12% and Samsung Electro-Mechanics −9%. Banks fell less: KB −2.0%, Shinhan −2.3%.

Selling did not begin yesterday. What changed is that the hand absorbing it is emptying. Foreign investors sold KRW 8.4641 trillion on the KOSPI from 10/1 to 10/12; today is the sixth session. At 10:30 this morning, year-to-date net selling reached KRW 200.8476 trillion, passing KRW 200 trillion.

Previous reports (#24·#25) recorded companies buying their own shares as September's last KOSPI buyers. Here is how that hand is moving now.

On 10/12, corporations (other corporations) also bought KRW 662.1 billion on the KOSPI (preliminary closing total). SK hynix's remaining buyback capacity was calculated at about KRW 8.7 trillion as of 10/5, with purchases continuing afterward. That is less than twice the KRW 4.65 trillion foreigners sold in SK hynix over four days. Individuals and institutions absorbed today's selling. Corporate purchases today will be available after the close.

We also watch buying with borrowed money. Margin loans stood at KRW 32.7764 trillion on September 23, below the June 24 peak of KRW 38.6328 trillion. Forced liquidation of accounts with insufficient collateral usually comes a day or two later. It could add selling early on 10/14–15 (interpretation based on general settlement mechanics, not a reported fact). A new 15% cap on single-stock margin-credit concentration applies from 10/19.

Foreign investors sold more than KRW 2 trillion, yet the won and government bonds were stronger. USD/KRW was almost unchanged: KRW 1,336.7 at 9:00 and KRW 1,338.8 around 11:28. The previous 15:30 close of KRW 1,335.1 was the lowest exchange rate (strongest won) since October 4, 2024. Morning government-bond yields fell to 3-year 3.875% (−4.6bp) and 10-year 4.245% (−6.1bp), reported at 11:43. Bond prices rose.

When overseas investors avoid Korea, the won usually weakens and government-bond yields rise. Today was the opposite. The won held up despite the dollar index reaching its highest level since April 2025, around 102.6. Exporters converting incoming dollars into won appear to have outweighed foreign investors converting stock-sale proceeds into dollars and leaving. August's current-account surplus was USD 46.1 billion, more than USD 2 billion per business day (interpretation).

Observation rule X7, set in the previous report, defines decoupling if the KOSPI falls more than 3% from 10/7 to 10/30 while USD/KRW rises no more than 0.5%. This morning's figures are KOSPI about −12.4% and USD/KRW about −0.1%, deeper inside that zone. The verdict comes only once, at the 10/30 close.

Why can they diverge this way? Stocks look ahead. They sell today if next year's memory prices look set to turn down. Export receipts supporting the won come from contracts already signed. Dollars keep arriving until doubts become actual unit-price declines (interpretation). Conversely, some analysis says the won's rapid rise is encouraging foreign selling. Park Sang-hyun at iM Securities said the sharp won appreciation and greater volatility stimulated foreign selling sentiment. Others noted that won strength lowers exporters' Q3 earnings estimates.

Memory was hit everywhere. Korea's index fell most. Japan's NAND maker Kioxia was −12.4%, SoftBank Group −8.0% and Advantest −5.4%. Yet the Nikkei was only −2.52% and broad-market TOPIX −0.46% at the morning close. TAIEX was −1.90%; TSMC ranged from −1.6 to −2.0%.

China is worth watching. News that CXMT is winning might seem positive for Chinese semiconductors, yet today China's STAR 50 was −3.11% and ChiNext −3.04%, with semiconductor stocks such as SMIC (−4%) leading the falls. CXMT itself was −3.1% on 10/12. The market appears to be trading memory prices passing their peak, rather than Korea's share moving to China (interpretation).

Composition explains the greater weight on Korea's index. The two companies, Samsung Electronics and SK hynix, exceed half of KOSPI market capitalization. Japan's semiconductor exposure is spread across equipment makers and SoftBank; Taiwan's leader is a foundry, TSMC, rather than memory. Korea also faces overlapping pressures: about 15% lost over five trading sessions, buybacks ending, and earnings estimates reduced by won appreciation.

Brokerages broadly read it as “CXMT is the trigger; flows and rates are the substance” (translated). These are their interpretations, not facts confirmed by Boboo from Sky.

The government and financial regulators had made no separate announcement by 12:00, based on reports. After the July 28 sell-off, economic/financial chiefs held an F4 meeting the next day.

Outside variables also moved. Houthi rebels have repeatedly attacked Riyadh airport since 10/10. Brent rose to USD 106.65 per barrel (+1.8%) on 10/12, then fell about 1.3% in Asia today. Claims of tanker attacks continue in the Strait of Hormuz. The US market's VIX was low at 15.21 on 10/12. Today's shock concentrated in memory rather than global risk avoidance.

This urgent intraday report still leaves many unknowns.

• Indices and flows are based on morning reports. Losses may narrow or deepen in the afternoon. Different reporting times mean figures can differ slightly even for the same time.
• Corporate (other corporations) net buying, institutional details such as pensions, and stock-level foreign selling amounts come after the close.
• Whether today's fall brings forced liquidation tomorrow depends on margin balances and collateral-ratio data.
• Nobody knows when or how much CXMT's announcement will affect actual supply and prices. What moved today was expectations.

We will check the following in tonight's closing report #27 and this week.

Doubt reached stocks first. Whether the won follows depends on export receipts.