(Flash Report) Korean Stocks Fall Sharply Again

At 10:56, the KOSPI was 5,540.70 (−7.79%). The KOSPI 200 was 859.03 (−8.30%) and the KOSDAQ 763.64 (−7.31%). On the KOSPI, 839 stocks fell and 67 rose (10:56).

Two reference lines are close. One is the July 30 closing value of 5,593.56. That was the bottom after the 7/28 sell-off; the following day brought the largest-ever rebound. The KOSPI is now 0.9% below it. July's low has been broken intraday. The other is the Stage 1 circuit breaker (−8%), which halts the whole market for 20 minutes; its calculated threshold is about 5,528. Against this year's highest close (6/22, 9,114.55), it is 39.2% lower.

Today's trigger is three overlapping developments from the US overnight. In order: inflation, debt and memory.

Across the US market, this looked more like rotation than panic. The Nasdaq was −1.88% and the S&P500 −1.11%, but the Dow was only −0.09%. Healthcare (+2.44%) and consumer staples (+2.21%) rose. The VIX rose 10% to 16.82 but is not high. The losses were in information technology (−3.00%) and AI-linked stocks.

10/13 and today look like the same decline, but different stocks are falling. On 10/13, doubts centered on memory prices. Semiconductor equipment stocks rose as memory stocks fell: Jusung Engineering +3.56%, PSK +6.50%, while Eugene Technology and WONIK IPS fell less than 1%. The closing report (#27) described this as “a split between beneficiaries of prices and beneficiaries of capex” (translated).

Today, equipment stocks fell as much as or more than memory stocks (at 10:56: Jusung Engineering −12.27%, PSK −12.39%, Eugene Technology −14.35%, WONIK IPS −12.76%). Banks (KB Financial −1.70%) and KT&G (+3.80%) barely fell or rose. Rather than the whole market collapsing, the entire chain tied to AI capex fell.

Why equipment too? AI data centers are increasingly built with borrowed money. In the previous report (#25), Boboo from Sky wrote that money buying memory ultimately comes from borrowing and investors. The weakest links are companies renting out GPUs. With rates staying high (US 10-year at 5.2–5.3%) and their bond yields reaching 15%, funding the next data center becomes expensive. Forbes described lenders' concern about the useful life of GPUs pledged as collateral. NVIDIA says they can last nearly 10 years; some lenders use 3–4 years (reported).

This is still a shift in expectations. There are no figures showing orders have declined. TSMC's capex plan this afternoon (previously USD 60–64 billion) is the first check (interpretation).

The sellers are foreign investors again. At 10:56, KOSPI foreign investors net sold KRW 2.2769 trillion; institutions net bought KRW 1.1961 trillion and individuals KRW 844.4 billion. On the KOSDAQ, foreign investors net bought KRW 31.4 billion, individuals net sold KRW 24.3 billion and institutions net sold KRW 7.2 billion.

The selling pattern differs slightly from 10/13.

• Basket selling is smaller than two days ago. At 10:56, program trading was arbitrage +KRW 436.9 billion, non-arbitrage −KRW 231.7 billion and total +KRW 205.2 billion. On the morning of 10/13, non-arbitrage selling of stock baskets was KRW 1.3100 trillion (11:04). Today's foreign selling may be closer to individual-stock orders than baskets. We cannot identify program buyers and sellers intraday.
• They bought futures for a third day. Foreign investors net bought KRW 1.9864 trillion of KOSPI 200 futures from 10/12 through 10/14 (reports citing Koscom). Cash selling and futures buying diverged. Interpretations include buying for a rebound and arbitrage targeting cash/futures price differences. Today's net buying by arbitrage programs suggests futures are relatively expensive, fitting the latter interpretation (interpretation).
• Losses concentrated along the semiconductor chain. Samsung Electronics KRW 210,250 (−9.38%), SK hynix KRW 1,261,500 (−11.10%), SK Square −11.85%, Samsung Electro-Mechanics −15.65%, Hanmi Semiconductor −9.29% (10:56).

From September 23 through yesterday, foreign investors net sold KRW 23.0359 trillion of KOSPI cash equities (reports citing Koscom). The year-to-date total is around KRW 205 trillion (reported).

Buying with borrowed money actually increased during the decline. Margin loans stood at KRW 34.2529 trillion on 10/13, up KRW 862.7 billion from 9/30. Of that increase, 85%, or KRW 736.1 billion, came in the three sessions 10/8–10/13. Many people borrowed more to seek a rebound as the index fell. Investor deposits were KRW 100.0983 trillion, down KRW 4.5661 trillion from 9/30 over the same period.

Accounts short of collateral are usually liquidated early in the session after the additional-collateral deadline passes. Unfilled shortfalls from the −5.46% decline on 10/13 may have contributed to this morning's selling. Margin-account liquidation totals are not separately published, so this cannot be verified (interpretation based on general settlement mechanics, not a reported fact). Today's decline pushes the same process forward another day or two.

The won is holding up less well than on 10/13. It has still not fallen as much as stocks. USD/KRW was 1,342.1 at 9:11, up KRW 4.0 from the previous daytime close of KRW 1,338.3 (The Aju Business Daily). Hana Bank's 10:54 quote was KRW 1,351.4 (+KRW 8.4, +0.63% versus its last quote the previous day). It is no longer unchanged as on the morning of 10/13, but the move is small for a day when the KOSPI is down more than 6%.

Government bonds moved the other way again. Government-bond yields actually fell at 10:56: 3-year 3.851% (−3.4bp), 10-year 4.212% (−3.3bp), from Reuters quotes via Naver Finance. That means bond prices rose. Money leaving stocks for safe government bonds appears to have mattered more than the intraday rise and fall in US yields. On 10/13 too, foreign investors sold stocks while buying Korean government-bond futures heavily (#27) (interpretation).

On the morning of 10/13, the won stayed unchanged despite foreign selling of more than KRW 2 trillion. Exporters converting incoming dollars into won outweighed foreign outflows. Today, the dollar index reached an 18-month high, making the outside wind stronger. The Bank of Korea decides rates on 10/22.

All of Asia fell; Korea fell most. The Nikkei 225 was −4.17% (10:41), TAIEX −3.07% (10:56), Shanghai Composite −1.50% and Hang Seng −1.01% (10:41, all Korea time). Unlike two days ago, Japan also fell sharply. The US shock appears to have reached rates and all AI capex, rather than memory alone (interpretation).

The reason the same shock weighs more heavily on Korea is the same as two days ago. The KOSPI has large weights in the two companies, Samsung Electronics and SK hynix, with equipment/component stocks below them on the same AI chain. Today, buying with borrowed money at its highest level since July adds to that.

Brokerages broadly read the situation as “lower prices alone are unlikely to stop it” (translated). These are their interpretations, not facts confirmed by Boboo from Sky.

No separate government or financial-regulator announcement had been reported as of the morning.

This urgent intraday report still leaves many unknowns.

• Indices and flows are preliminary morning totals. Losses may narrow or deepen in the afternoon.
• The semiconductor share of foreign selling, and the amounts bought by corporations (other corporations) and pension funds, come after the close.
• The share of this morning's selling due to margin-account collateral-shortfall liquidation is not published.
• Nobody knows whether CoreWeave bond prices and Gartner's warning will reduce actual data-center orders. What moved today was expectations.

We will check the following this afternoon and this week.

Two days ago, the doubt was about memory prices; today, about the money buying that memory. There are no figures yet showing whether that money actually shrinks.