KOSPI Down 18% This Year... Could It Be the Largest Drop Since the Financial Crisis?

[Asia Economy Reporter Kwon Jae-hee] The KOSPI has recently continued to decline amid concerns of an economic recession due to rapid interest rate hikes, falling nearly 20% compared to the beginning of the year.

Leading domestic growth stocks such as Naver and Kakao have dropped more than 30% since the start of the year, and Samsung Electronics, which once dreamed of becoming a '100,000-won stock,' has plummeted to a '50,000-won stock.'

According to the Korea Exchange on the 19th, starting from the 'Black Monday' on the 13th, the KOSPI fell to below the 2400 mark during trading on the 17th. The weekly decline rate for KOSPI from the 13th to the 17th was -5.97%, and the KOSDAQ's weekly decline rate was -8.18%.

The weekly decline rate for KOSPI was the second highest this year since January 24-28 (-6.03%), and the KOSDAQ's weekly decline rate was the largest in two years and four months since February 24-28, 2020 (-8.57%).

Since the beginning of the year, the market has experienced a sharp downturn due to concerns over tightening by the U.S. Federal Reserve (Fed), and recently, the possibility of an economic recession has increased due to the Fed's giant step (a 0.75 percentage point interest rate hike at once), causing the domestic stock market to show a rapid downward trend.

Compared to the beginning of the year, the KOSPI dropped 18.02% from 2977.65 at the end of last year to 2440.93 on the 17th of this month, and the KOSDAQ fell 22.76% from 1033.98 to 798.69.

If this trend continues until the end of the year, it could record the largest annual decline since the global financial crisis in 2008 (KOSPI -40.73%, KOSDAQ -52.85%).

Market experts predict that there may be a brief technical rebound in the third quarter due to recognition of an excessive market drop, but in the fourth quarter, concerns over an economic recession will expand, leading to a secondary downward trend.

Due to inflation and the Fed's rapid interest rate hikes, the dominant opinion in the securities industry and academia is that an economic recession will occur within next year.

Seo Sang-young, Head of Media Content at Mirae Asset Securities, explained, "As central banks around the world accelerate tightening, the market is calculating the worst-case scenario that the economy is heading into a recession, which is causing the stock market to fall sharply. Our country, being highly dependent on exports, is more affected by the possibility of a global economic slowdown."

Jung Myung-ji, Head of Investment Information Team at Samsung Securities, pointed out, "Since 2008, the process of completely reversing near-zero interest rates and unlimited quantitative easing has caused unusual phenomena such as a sharp rise in the dollar's value and a sharp drop in the yen's value, making the market feel even more fearful."

He added, "Although the stock market may experience the largest annual decline since 2008, considering the rapid rise over the past two years, it is difficult to regard this as a crisis situation comparable to the financial crisis."

After the KOSPI fell 40.73% in 2008, it rose 49.65% in 2009 and 21.88% in 2010. Before this year's decline, it rose 30.75% in 2020 and 3.63% in 2021.

As of the 17th, the market capitalization of the KOSPI and KOSDAQ markets were 1,921.1 trillion won and 354.2 trillion won respectively, with a combined market capitalization of 151.8 trillion won evaporating in just one week.

On the 13th alone, the KOSPI plunged 3.52% and the KOSDAQ 4.72%, resulting in a loss of 88 trillion won in market capitalization.

Since the beginning of the year, 282.2 trillion won has been lost in the domestic securities market and 92.1 trillion won in the KOSDAQ market, totaling 374.3 trillion won in evaporated market capitalization.

In particular, Samsung Electronics alone, which has fallen to a '50,000-won stock,' saw its market capitalization decrease by 110 trillion won this year. On the 17th, Samsung Electronics' stock price fell below 60,000 won for the first time in 1 year and 7 months since November 2020.

The outflow of foreign capital led to a sharp decline in large-cap stocks, driving the stock market downturn.

Large-cap stocks in the KOSPI fell 17.33% this year, mid-cap stocks 14.03%, and small-cap stocks 9.89%.

Among the top 10 stocks, Naver (-37.25%) and Kakao (-35.82%) experienced significant declines, and the top three companies by market capitalization?Samsung Electronics (-23.63%), LG Energy Solution (-28.73%), and SK Hynix (-26.41%)?also saw declines exceeding 20%.

Hyundai Motor (-18.66%), Samsung SDI (-15.11%), Kia (-7.42%), Samsung Biologics (-6.77%), and LG Chem (-6.02%) also could not avoid declines.

Additionally, growth stocks such as Kakao Pay (-57.71%), HYBE (-57.45%), SK Bioscience (-53.78%), and Kakao Bank (-38.73%) showed prominent declines.

The securities industry has been collectively lowering target prices for major stocks since mid-month, citing macroeconomic instability.

Sangsangin Securities [001290] lowered Samsung Electronics' target price from 77,000 won to 74,000 won, stating that it could fall to the low 50,000 won range under the worst-case scenario. Eugene Investment & Securities [001200] lowered it from 88,000 won to 79,000 won, and Shinhan Financial Investment lowered it from 87,000 won to 83,000 won.

Hana Financial Investment lowered Naver's target price from 450,000 won to 350,000 won.

Regarding Kakao, Hanwha Investment & Securities lowered the target price from 130,000 won to 115,000 won, and NH Investment & Securities lowered it from 140,000 won to 110,000 won.

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