[MarketING] KOSPI Records Largest Drop This Year Due to One-Day-Delayed SVB Shock

KOSPI and KOSDAQ Record Largest Drop This Year
KOSPI Falls Below 2400, KOSDAQ Below 760
Foreign Selling and Investor Sentiment Weakening Impact

[Image source=Yonhap News]

The shock of the bankruptcy of Silicon Valley Bank (SVB) in the United States hit the domestic stock market a day late, causing the KOSPI and KOSDAQ to record their largest declines this year. Although the KOSPI held firm and showed strength the previous day, investor sentiment weakened, leading to massive sell-offs by foreign investors and a sharp drop.

KOSPI and KOSDAQ Record Largest Declines This Year

On the 14th, the KOSPI closed at 2,348.97, down 61.63 points (2.56%) from the previous day. The KOSDAQ ended the session at 758.05, down 30.84 points (3.91%). The KOSPI fell below the 2,400 mark in just one day, and the KOSDAQ dropped to the 750 level.

Foreign investors drove the indices down with massive sell-offs. On that day, foreigners net sold 639.4 billion KRW in the KOSPI market and 245.5 billion KRW in the KOSDAQ. Notably, they sold over 1.6 trillion KRW worth of futures, marking the largest scale this year.

Seokhwan Kim, a researcher at Mirae Asset Securities, said, "The aftermath of the SVB bankruptcy continued to dampen investor sentiment, and caution increased ahead of the U.S. February Consumer Price Index (CPI) announcement. Although the won-dollar exchange rate showed limited intraday volatility, foreign selling of spot and futures expanded, especially with foreigners selling over 1.6 trillion KRW in futures, causing most of the top market capitalization stocks to weaken."

Most of the top market capitalization stocks showed weakness, with financial stocks notably declining. On that day, KB Financial Group fell 3.78%, Shinhan Financial Group 2.64%, Hana Financial Group 3.86%, and Woori Financial Group 3.42%. Researcher Kim explained, "Although the U.S. government is actively responding to the SVB bankruptcy with measures such as depositor protection policies, liquidity concerns for small and medium-sized banks have surfaced, leading to overall weakness in financial stocks across major Asian markets."

It appears that time will be needed for the weakened investor sentiment to recover. Kyungmin Lee, a researcher at Daishin Securities, said, "The problem with this SVB bankruptcy incident is that the possibility of financial system risks arose due to high-intensity tightening, which sharply dampened the sentiment of investors who had hoped for a no-landing scenario. For the time being, the global financial market is likely to react sensitively to news of defaults by small companies and banks, recalling the nightmare of the 2008-2009 financial crisis."

Focus Needed on Foreign Investor Flows

Since the SVB incident led to a decline in investor sentiment and a sharp drop in the stock market due to foreign selling, attention should be paid to foreign investor flows.

Daejun Kim, a researcher at Korea Investment & Securities, said, "The most notable aspect in terms of market response is foreign investor flows. The Asian markets, including the Korean market, cannot avoid being affected by the SVB bankruptcy. From this perspective, cautious approaches are necessary for sectors where foreigners maintained net selling positions last week."

Researcher Kim identified healthcare, hotel & leisure, hardware, and transportation as sectors with unstable supply and demand. He said, "Negative trends are detected in these sectors due to the absence of Chinese inbound consumption and a slowdown in global IT demand. Since supply and demand are unstable in the short term, the possibility of further foreign net selling should be kept in mind." He added, "The short-selling balance ratios of stocks in these sectors have also increased compared to before, so a conservative approach to investment is necessary."

Although the incident inevitably has a negative impact on the stock market, it is expected not to threaten the 2,200 level. Yonggu Kim, a researcher at Samsung Securities, said, "Typically, the mid- to long-term bottom of domestic and international stock markets, reflecting extreme recessions and Fed tightening fears, has been limited to a 35% decline from the recent two-year index highs. When systemic risks such as credit, banking, and sovereign risks were added, further market downturns occurred. Considering that as of the closing on the 10th, the KOSPI and KOSDAQ were down 26.4% and 23.6% respectively from their recent two-year highs, even accounting for possible hiccups during the resolution process, the potential maximum decline of the index is likely limited to within 10%. This is why the current incident is not expected to threaten the KOSPI 2,200 level, which corresponds to the mid- to long-term domestic market bottom."

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