Investment Warnings Surge... "Warning Light" Flashes as KOSPI Nears 8,000 Points

Samsung Electronics Faces Strike Threat as KOSPI Pauses for Breath
Investment Warnings in Bull Market Surpass 70% of Last Year’s Total in Just Four Months
Concerns Over a 'Correction Leading to Forced Selling' Cycle May Be Overstated

The KOSPI, which had climbed close to the 8,000-point mark, has entered a period of consolidation. The market is facing downward pressure due to concerns over a possible strike following the breakdown of labor-management negotiations at Samsung Electronics and a surge in investment warnings, suggesting signs of overheating. While there are growing concerns about excessive volatility and leveraged investments (known as "Bittu," or investing with borrowed funds), analysts say the likelihood of a major stock market crash caused by large-scale forced liquidations, as was seen in the past, remains low.

On May 13, the KOSPI opened at 7,513.65, down 1.69% from the previous trading day, and as of 9:50 a.m., it was trading at 7,485.17, down 2.07%. In particular, Samsung Electronics experienced a significant drop as the possibility of a general strike grew after labor-management negotiations over performance bonuses fell through. Samsung Electronics was trading at 2,675,000 won, down 4.12% (115,000 won) from the previous session. At the same time, the KOSDAQ was trading at 1,158.58, down 1.76%. The won-dollar exchange rate opened at 1,493.8 won, up 3.9 won from the previous session, and was trading at 1,495.4 won.

Overnight, the New York stock market was mixed due to concerns over inflation and profit-taking in semiconductor stocks. On May 12 (local time), the Dow Jones Industrial Average closed at 49,760.56, up 56.09 points (0.11%) from the previous session. The Standard & Poor's (S&P) 500 Index ended at 7,400.96, down 11.88 points (-0.16%), while the tech-heavy Nasdaq Composite Index finished at 26,088.20, down 185.92 points (-0.71%). Semiconductor stocks, which have recently led the rally, drove the indices lower. Micron (-3.61%), Qualcomm (-11.46%), Intel (-6.82%), SanDisk (-6.17%), and Western Digital (-5.25%) all declined.

Meanwhile, the number of stocks designated as investment warnings this year is expected to reach a 10-year high. According to the Korea Exchange, from January to May 11, there were a total of 250 investment warning designations on the KOSPI and KOSDAQ. This figure surpassed 70% of the annual totals of 352 in 2020 and 348 last year, both years when the "Donghak Ant Movement" retail investment boom occurred, in just over four months. This year's monthly progression shows 55 cases in January, 47 in February, and 49 in March, before surging to 80 in April. This month, there have been 19 cases in just five trading days.

By market, Daewon Cable and LS Eco Energy were designated as investment warning stocks on the KOSPI this month. This was due to speculative demand pouring into power equipment stocks, driven by the global expansion of artificial intelligence (AI) data centers and the replacement cycle for aging power grids. On the KOSDAQ, optical communication-related stocks such as Lycom and Wooriro were designated. This is interpreted as a result of the market's focus on next-generation transmission technologies to overcome the limitations of traditional copper wire, as the spread of AI has led to a sharp increase in data processing volumes.

The market warning system is a system in which the exchange notifies investors of risks for stocks that may be subject to unfair trading, such as when trading is concentrated in a small number of accounts or when stock prices surge over a short period. The warnings are divided into three levels depending on the degree of risk: investment caution, investment warning, and investment risk. If an investment warning stock rises sharply in price after designation, trading can be suspended. For investment risk stocks, trading is suspended for one day on the day of designation.

The surge in investment warning stocks is the result of a massive influx of funds into the stock market. After the KOSPI surpassed 6,000 points at the end of February, both idle funds waiting to enter the market and leveraged investments increased. According to the Korea Financial Investment Association, as of May 11, investor deposits stood at 13.4097 trillion won, up 22.49% from 10.94676 trillion won on February 25. Over the same period, credit transaction loans rose 12.03%, from 3.2134 trillion won to 3.59985 trillion won.

However, the increase in credit balances has lagged behind the rise in the KOSPI, suggesting that the actual risk from leveraged investments is not high. According to Kiwoom Securities, from April to May 8, the KOSPI rose 48%, while the credit balance increased only 10%. In the case of the semiconductor sector, the leading industry in the market, stock prices soared 78%, but credit balances increased by just 1%, indicating a very stable trend. Major AI value chain stocks, such as IT hardware and power equipment, also have low credit risk, so they are unlikely to trigger a broad-based decline in the index going forward.

Han Ji-young, a researcher at Kiwoom Securities, said, "Although the absolute increase in credit balances can on the surface create an environment for concerns about speculative overheating, the surge in credit balances has actually been limited despite the record-breaking rally." She added, "Supply-side constraints such as limits on securities firms’ credit provision and margin ratio management, along with shifts in demand where individual investors prefer cash purchases or ETFs in large-cap rallies, have also played a role. As a result, the vicious cycle of 'correction appears → leverage unwinding → additional index decline due to forced liquidation' is not as severe as feared."