By Gregor Stuart Hunter, Rae Wee and Jihoon Lee <\/p>\n
SINGAPORE\/SEOUL, July 29 (Reuters) – South Korean stocks plunged for a second straight session on Wednesday as Asia’s once-blazing AI rally morphed into a brutal market reckoning, wiping as much as $2.18 trillion from Seoul’s equity market and leaving leveraged retail investors reeling. <\/p>\n
The benchmark KOSPI index dived \u200cas much as 12.6% before trimming some losses to close down 6%, extending Tuesday’s near-11% rout and putting the market on course for its steepest monthly decline \u200con record. The slide has erased almost 40% of the index’s value from a peak reached little more than a month ago. <\/p>\n
Volumes were light, suggesting buyers have evaporated from what just weeks ago was the hottest trade in global \u200bmarkets \u2014 buying the chipmakers raking in cash from AI investment. <\/p>\n
Much of that buying was done by small-time investors using borrowed money to increase their exposure, and that dynamic, which accelerated the rally, is exacerbating the selloff as brokers forcibly shut down losing positions. <\/p>\n
Under pressure from lawmakers during a parliamentary session, Finance Minister Koo Yun-cheol apologised for the introduction of single-stock leveraged ETFs, saying they had not been considered carefully enough. He added that the government is reviewing market stabilisation measures, including adjusting regulation related to the funds, which some analysts have blamed for increasing the amount of leveraged trading in the Seoul \u200cbourse. <\/p>\n
Koo, the governor of the Bank of Korea, and the heads \u2060of financial regulators met late on Wednesday to discuss the situation. The meeting came two weeks after their last meeting on July 16 when they announced tighter regulations to cool the ETF investment boom. <\/p>\n
In a statement after the meeting, the finance ministry said it would immediately pursue further curbs on \u2060single-stock leveraged products, including individual investment limits \u2014 citing a cap of up to 20% of an investor’s total investment amount as an example \u2014 higher trading costs to deter excessive activity and simulated trading requirements. <\/p>\n
It will also prepare a legal basis for emergency market-stabilisation steps. <\/p>\n
“It’s certainly a very crowded trade which is being unwound,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. <\/p>\n
“If you look at \u200bwhat \u200bis falling in the market, it has been the stocks in which you have the most leverage,” he \u200bsaid. “It’s very difficult to say when will this selloff end, but at \u200cthe moment, it’s definitely not the trade where we want to be.” <\/p>\n
Story Continues <\/p>\n
Even blockbuster earnings from SK Hynix, which reported a six-fold jump in profit, failed to stem the panic as the results lagged lofty expectations. The chipmaker’s shares slumped nearly 20% before recovering some ground, closing down 9.6%, while Samsung Electronics fell as much as 14% before trimming losses to 5.2%. <\/p>\n
U.S.-listed shares of SK Hynix fell 5.9% in premarket trading. <\/p>\n
Together, the two chip giants account for more than half of the KOSPI’s market value and have exerted substantial influence over the market this year as traders seek a slice of the lucrative AI trade amid a shortage of advanced memory chips. <\/p>\n
“Hopes of the market rebounding today after a 10% plunge yesterday faded, triggering panic selling and forcing \u200cmost stock investors to book losses,” said Han Ji-young, an analyst at Kiwoom Securities. “Doubts are prevalent in the \u200bmarket that the current index level would not be the bottom.” <\/p>\n
Semiconductor stocks across Asia took a beating. Shares in \u200bTaiwan’s TSMC, the world’s biggest contract chipmaker, fell 3.5% in Taipei, while UMC, another Taiwanese \u200bchip foundry, fell 9.7%. In Tokyo, Kioxia, a Japanese memory chipmaker, plunged 13.9%. <\/p>\n
“There was definitely signs of panic and forced unwind in Asia technology today, \u200cnot only on the long side, but also on the short side \u200bin Japan where you saw heavily out of \u200bfavour names such as Nintendo and Sony rallying very strongly to compound the pain,” said Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore. <\/p>\n
“The fast money market is keen to derisk ahead of key hyperscaler earnings as well as the upcoming Fed rate decision, where whispers of a hike in recent days have added to \u200bthe unwind urgency.” <\/p>\n
Despite the tumble, the KOSPI is up 41.5% in \u200cU.S. dollar terms year-to-date, making it the best-performing major market this year. <\/p>\n
“Today’s price action suggests that the leverage within Korean equities remains high and a further unwind \u200bcould be expected,” said Asia-Pacific macro strategist Wee Khoon Chong at BNY in Hong Kong. <\/p>\n
($1 = 1,451.9000 won) <\/p>\n
(Reporting by Gregor Stuart Hunter, Rae Wee, Jihoon Lee and \u200bAnkur Banerjee; Additional reporting by Joyce Lee; Editing by Christopher Cushing, Subhranshu Sahu and Shri Navaratnam) <\/p>\n","protected":false},"excerpt":{"rendered":"By Gregor Stuart Hunter, Rae Wee and Jihoon Lee SINGAPORE\/SEOUL, July 29 (Reuters) – South Korean stocks plunged…\n","protected":false},"author":2,"featured_media":107324,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[2619,335,53250,241,240,53249],"class_list":["post-107323","post","type-post","status-publish","format-standard","has-post-thumbnail","category-sk","tag-chipmaker","tag-kospi","tag-parliamentary-session","tag-sk","tag-sk-group","tag-stock-investors"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/107323","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=107323"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/107323\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/107324"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=107323"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=107323"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=107323"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}