Falling to World's Lowest: "Forced Sales Push Prices Down Further"

[Anchor]

It is Tuesday's Friendly Economy. The sentiment surrounding the KOSPI this month has been quite gloomy.

[Reporter]

That is correct. It has plummeted to the very bottom globally.

Entering this month through last week, while Taiwan—another semiconductor powerhouse—saw a 2% decline, the KOSPI plunged by over 17%.

During the first half of this year alone, the KOSPI was performing the best in the world.

After taking a major hit in July and slipping again this month, its overall performance for the year has lost the top spot to Taiwan and Poland.

It was not just about semiconductors.

Seven out of ten KOSPI and KOSDAQ stocks dropped, and more than 120 stocks plummeted by over 20%.

Foreign investors were the problem once again.

Over the first half of this month, they sold off 17.7 trillion won worth of shares, with 80% of them being Samsung Electronics and SK Hynix.

Are the massive amounts of money poured into AI actually turning into profit? You have probably been hearing this question often lately.

That doubt has grown stronger once again.

As the corporate bond prices of CoreWeave, a U.S. company that leases servers used for AI calculations, dropped, concerns emerged over whether they could handle their debt, and the revenue growth of AI firm Anthropic also slowed compared to the previous quarter.

Then why did South Korea take the direct hit?

Some securities analysts suggest that when global funds need to pull money out, South Korea is a market where trading is active, making it easy to sell off and exit all at once.

Fortunately, yesterday (October 19), after dropping more than 3% in early trading, the market rebounded for the second consecutive day, finishing up 1.8% at 5,768.

This was thanks to institutional buying, a slowdown in foreign selling, and sharp gains in secondary battery and biotech stocks.

[Anchor]

Then there must have been quite a lot of forced liquidations this month.

[Reporter]

Margin calls, where securities firms forcibly sell off stocks, exceeded the total for the entire previous month within just the first half of this month.

There has been a lot of debt-financed investing (known as "빚투") recently.

Margin liquidations occur when stocks purchased with borrowed money from securities firms drop too sharply, or when payment for stocks bought on credit is not made on time, prompting brokerages to sell the shares without the owner's consent to recover the funds.

From the 1st to the 15th of this month, shares sold off through credit transactions alone amounted to 333.9 billion won, which is over 50% more than the entire previous month.

The problem is that this triggers another drop in stock prices.

It is a vicious cycle where a drop leads to forced selling, and the selling pushes prices down further.

The credit financing balance, which shows the scale of debt-financed investing, shrank by more than 1.5 trillion won over three days, and customer deposits parked with brokerages to buy stocks plunged by 7.7 trillion won in half a month.

Securities firms are also unable to smile.

In the first half of the year, the booming stock market led to record-high earnings.

However, as trading activity cooled down sharply, commission income shrank.

Daily trading values dropped by more than 40% over two months, and forecasts suggest that the third-quarter net profits of major brokerages will be less than half of what they were a year ago.

Mirae Asset Securities even faced a deficit outlook as the value of its investments in SpaceX shares declined.

[Anchor]

The fever has certainly cooled down significantly compared to the first half of the year.

[Reporter]

As for what to do next, experts advised diversifying evenly between stocks and safe assets rather than panicking and selling.

Gathering opinions from the securities industry, some analyze that since prices have dropped sharply in a short period, a technical rebound could follow.

The advice is not to rashly sell off semiconductors and to keep a watch on them.

This is because profit forecasts remain solid, while the burden has actually decreased due to the sudden drop in stock prices.

In addition, U.S. long-term interest rates are at a 24-year high.

Since rising interest rates are unfavorable for stocks, opinions suggest keeping an eye on defensive stocks like semiconductors, power-related shares, banks, and insurance that can grow enough to overcome that burden, or heavily beaten-down secondary battery stocks.

The core is diversification.

One asset management firm suggested 50% stocks, 25% bonds, 20% cash, and 5% gold.

Since having more than 60% in stocks can impose a heavy burden of losses, they advise holding cash and buying back gradually when rebound signals appear.

There is also advice to watch and wait for a month or two rather than rushing to buy more just because prices have become cheap.

Then what are the rebound signals?

They are these four: how big tech earnings turn out at the end of this month, whether U.S. long-term interest rates stabilize, whether foreign selling stops, and whether next year's semiconductor profit forecasts are maintained.

If it is confirmed that AI companies are making money, the atmosphere could shift.

Some analyses also suggest that it is still too early to conclude that the AI revolution is over.

As President Lee Jae-myung stated yesterday that our stock market is severely undervalued and that necessary measures will be taken, the cards the government will pull out are also something to watch.
※ Please note: This article was translated by AI and may contain errors.