[Weekly Market Review] Kospi Experiences Volatile Adjustment with 100-Point Fluctuation in a Day

Concerns Over COVID-19 Resurgence, North Korean Provocations Increase Volatility
Preferred Stocks Show Unusual Fluctuations

[Asia Economy Reporter Oh Ju-yeon] As concerns over the resurgence of the novel coronavirus infection (COVID-19) and provocations from North Korea increased, volatility in the domestic stock market intensified, causing the KOSPI to plunge more than 100 points in a single day, only to rebound by over 100 points the following day, showing extreme fluctuations. Experts analyzed that since the stock market rise after COVID-19 was steep, the correction was also short and sharp.

According to the Korea Exchange on the 20th, the KOSPI closed at 2,141.32 for the third week of June (15th?19th), up 9.02 points (0.4%) compared to the previous week. Although the weekly volatility of the KOSPI seemed very mild, the daily fluctuations in the early part of the week reached extremes. It swung dramatically by 100 points up and down in a single day.

On the 15th, the KOSPI started the session down to the 2,110 level but narrowed the decline to 2,129 during the day. However, in the afternoon, concerns over a second wave of COVID-19 and North Korean provocations intensified, causing the largest plunge since the crash in March. On that day, the KOSPI plummeted more than 100 points from the previous trading day’s 2,132.30 to 2,030.82 (-4.76%).

The next day, on the 16th, the opposite situation occurred. Positive news such as the Federal Reserve’s (Fed) implementation of a $600 billion MSLP (Main Street Lending Program) to support small and medium-sized enterprises, a $250 billion corporate bond purchase program to ease corporate credit risk, and the partial easing of U.S. Commerce Department sanctions on Huawei, which alleviated U.S.-China conflict concerns, led to a sharp rise. The KOSPI opened at 2,091.09, up 2.97% from the previous day, and with buying momentum fueled by abundant liquidity in the market, it closed at 2,138.05, up 5.28% from the previous day. At 10:52 a.m. that day, the Korea Exchange also triggered a buy-sidecar.

The buy-sidecar in the KOSPI market is triggered when the KOSPI200 futures price rises more than 5% above the reference price, which is the previous day’s closing price, and sustains that level for one minute. The exchange explained, "The KOSPI200 futures rose from the previous day’s closing price (reference price) of 265.00 points to 278.40 points, an increase of 13.40 points (5.05%), and sustained this for one minute, triggering the sidecar."

This year, the sidecar has been triggered a total of seven times, with this being the third time for a buy-sidecar.

On the same day, the KOSDAQ index also surged 6.09% from the previous day, triggering a buy-sidecar. This was the sixth time this year that a sidecar was triggered in the KOSDAQ market, and the third time for a buy-sidecar.

However, after the bullish close, news of North Korea blowing up the inter-Korean joint liaison office building once again stirred investors’ anxieties. Nevertheless, the market responded more to expectations of global economic recovery than to North Korean provocations, and the KOSPI, which started down on the 17th, closed up 0.14% at 2,014.05. Subsequently, on the 18th and 19th, the market showed a stock-specific trend, fluctuating around the 2,120 to 2,150 range without clear direction.

Among the stocks that drew particular attention in the third week of June were preferred stocks. According to the Korea Exchange, the average price increase of the top 20 preferred stocks this month was 171%, more than 10 times the common stocks’ increase of 17%. The price divergence rate between preferred and common stocks also showed a very high average of 918%. Some preferred stocks exhibited abnormal surges regardless of corporate earnings, and these rapidly rising preferred stocks were characterized by low liquidity, with a small number of listed shares and low market capitalization.

A representative example is Samsung Heavy Industries preferred stock. Based on closing prices, Samsung Heavy Industries preferred stock continued a 10-day consecutive limit-up streak starting from the 2nd. The stock price, which traded at 54,500 won on the 1st, soared 13.7 times (1,265.1%) to 744,000 won by the close on the 17th. The price divergence rate compared to the common stock (6,470 won) reached 11,399%.

The same price surge was supported by recent large-scale orders received by domestic shipbuilders, but the rise in Samsung Heavy Industries preferred stock was so steep that it showed signs of overheating. The abnormal rally of Samsung Heavy Industries preferred stock stopped on the 19th.

Even on the 19th, after the trading suspension was lifted on the 18th, Samsung Heavy Industries preferred stock again hit the daily limit during the session, soaring to as high as 960,000 won, but then selling pressure emerged, and the stock closed down sharply by 20.43% at 592,000 won that day.

The exchange urged investors to make rational judgments based on the corporate earnings and fundamentals of common stocks.

The exchange stated, "We are closely monitoring unfair trading related to preferred stocks. If unfair trading activities are detected, we will cooperate strongly with financial authorities to take firm action," and added, "Please actively report any suspicious unfair trading activities involving false or exaggerated information dissemination related to preferred stocks."

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