KOSPI Plummets on "Black Friday of Fear"... Foreigners Sell Off 1.6 Trillion Won Bomb

by Lee Seonae

Published 13 Aug.2021 11:15(KST)

[Image source=Yonhap News]

[Asia Economy Reporters Lee Seon-ae and Kim Eun-byeol] On the 13th, the KOSPI index plunged, breaking below the 3150 level during the session. Foreign investors' massive sell-off amounting to 1.6 trillion won created a "Black Friday of fear." Factors such as the possibility of changes in the U.S. Federal Reserve's (Fed) monetary policy due to improved employment and soaring inflation in the U.S. stock market, as well as the sharp depreciation of the Korean won, also weighed heavily.

The KOSPI opened at 3205.75, down 2.63 points (0.08%) from the previous session's close, and immediately fell below the 3200 level early in the trading session. The decline widened during the morning, breaking below the 3150 level. The intraday drop below 3200 was the first in nine trading days since the 2nd (intraday low of 3194.00). Additionally, falling below 3150 marked the lowest level since May 31 (intraday low of 3179.87). As of 10:40 a.m., the KOSPI was down 1.46% at 3161.96. It is expected to close below 3200 for the day as well. The last time the closing price fell below 3200 was about three months ago on May 28. As of 11:10 a.m., foreign investors' net selling in the KOSPI market exceeded 1.6 trillion won.

As foreign investors dumped domestic stocks, the won-dollar exchange rate surged, now approaching 1170 won. Considering the imminent tapering (reduction of asset purchases) by the Fed, which is driving up the dollar's value, and the relatively weak won due to the persistent number of COVID-19 cases in Korea, the exchange rate is expected to continue rising for the time being.

In the Seoul foreign exchange market, the won-dollar exchange rate opened at 1163.5 won, up 2.3 won from the previous day, and as of 10:34 a.m., it was trading at 1168.28 won. This is the highest intraday level since September 29 last year (1171.20 won). The won-dollar exchange rate has risen more than 25 won just this week compared to the closing price on the 6th (1142.10 won).

With the Fed's tapering timing approaching and the global spread of the COVID-19 Delta variant triggering a preference for safe-haven assets, the dollar has begun to strengthen.