KOSPI and KOSDAQ Plunge Over 8%... Second Circuit Breaker This Year (Comprehensive)

[Asia Economy Reporter Oh Ju-yeon] On the 19th, both the KOSPI and KOSDAQ indices plummeted by over 8%, triggering circuit breakers (CB) in both markets.

The Korea Exchange announced that at 12:05 p.m. that day, the circuit breaker was triggered for the second time this year in the KOSPI market.

On that day, the KOSPI fell from the previous closing index (reference price) of 1591.20 to 1461.51, a drop of 129.69 points (-8.15%) (over 8%, sustained for 1 minute), activating the first-level circuit breaker. As a result, trading of all listed stocks, ETFs, and other securities (excluding bonds) on the KOSPI market was suspended for 20 minutes.

Until now, the circuit breaker has been triggered a total of five times in the KOSPI market. These instances include April 17, 2000, when the U.S. stock market declined; September 18 of the same year due to a surge in oil prices; and September 12, 2001, during the U.S. 9/11 terrorist attacks.

Out of the five circuit breaker activations, two occurred this year. On the 13th, the circuit breaker was triggered for the first time this year due to the stock market crash caused by the COVID-19 pandemic.

On the 19th, the KOSPI index opened at 1,626.09, up 34.89 points (2.19%) from the previous trading day. Dealers are working in the Hana Bank dealing room in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

On that day, the KOSPI returned to 2009 levels. Among the approximately 900 listed stocks on the exchange, only nine stocks rose.

Samsung Electronics fell below 43,000 KRW to 42,550 KRW, and SK Hynix (-6.02%), Hyundai Motor (-6.39%), LG Chem (-11.43%), and Samsung SDI (-12.64%) also dropped sharply.

Despite such market conditions, individual investors continued net buying.

In the KOSPI market, individuals purchased stocks worth 207.3 billion KRW, maintaining a net buying streak for 11 consecutive trading days. Foreign investors sold stocks worth 385 billion KRW, while institutions net bought stocks worth 130.6 billion KRW.

Except for four days this month (-3.8 billion KRW), individuals have been buying stocks continuously.

According to the Korea Exchange, an analysis of monthly net buying amounts by individuals over the past 12 years and one month from January 2008 to this month shows that from the 1st to the 18th of this month, individuals net bought a total of 8.3863 trillion KRW in the KOSPI market, marking the highest level in 10 years.

This is interpreted as the market viewing the COVID-19-induced decline as a buying opportunity at low prices.

The KOSDAQ index also plunged more than 8% compared to the previous trading day, triggering a circuit breaker. The KOSDAQ index fell 40.33 points (-8.31%) from the previous closing price of 485.14 to 444.81.

The exchange analyzed that the preference for safe assets rapidly spread due to the COVID-19 pandemic. The circuit breaker activation in the KOSDAQ market was the ninth in history and the second this year.

Looking at past activations, they occurred on January 23, 2006, during the U.S. stock market downturn and theme stock crash; August 16, 2007, amid the spread of the subprime crisis; October 23 and 24, 2008, during the global financial crisis; and August 8 and 9, 2011, when the U.S. credit rating was downgraded. The most recent before this year was on February 12, 2016, amid concerns of a global economic recession. On the 13th of this month, the circuit breaker was triggered again due to COVID-19 pandemic concerns, alongside the KOSPI market.

Meanwhile, the won-dollar exchange rate surged, approaching the 1,300 KRW level.

In the Seoul foreign exchange market, as of 11:05 a.m. that day, the won-dollar exchange rate rose sharply by 41.8 KRW from the previous closing price (1,245.7 KRW) to 1,287.5 KRW.

In the securities industry, the first critical threshold is estimated to be 1,310 KRW.

Lee Seung-hoon, a researcher at Meritz Securities, said, "1,245 KRW has served as a strong upper limit for the won-dollar exchange rate even during various financial market instabilities since the financial crisis, but it has now been surpassed for the first time in over 10 years," adding, "If financial instability continues, won overshooting is possible, but the possibility of reaching 1,500 to 1,600 KRW per dollar, as experienced during the 2008 financial crisis, is low."

He continued, "Judging the first critical threshold of overshooting through the real effective exchange rate (REER), it is estimated to be around 1,310 KRW. Considering the possibility that the negative impact of COVID-19 and financial instability will largely dissipate around the end of the second quarter, the forecast for the end of the first half is 1,200 KRW. However, if the COVID shock prolongs unexpectedly, won overshooting may intensify, and additional time will be needed for a return to an appropriate level."

This content was produced with the assistance of AI translation services.