South Korean Stock Market Plunges 12% Consecutively, Authorities Hold Emergency Meeting, Is the Chip Stock Bubble About to Burst?

Author: Ahboyash Reads

Translation: TechFlow

TechFlow Editor's Note: South Korea's KOSPI and KOSDAQ indices plummeted over 12% for two consecutive days, setting a record for the first time in the exchange's history that the circuit breaker mechanism was triggered consecutively. Despite strong Q2 performance from Samsung and SK Hynix, the market worries about China's chip catch-up and declining demand from major U.S. tech companies, questioning whether the rally driven by semiconductor stocks can sustain. Is this plummet a precursor to a global tech stock valuation correction, or a structural crisis for South Korea's economy?

Figure: On the afternoon of the 29th, the electronic screen at the Hana Bank trading room in Jung-gu, Seoul showed the KOSPI index closing at 5,663.24 points, with Samsung Electronics and SK Hynix stock prices falling simultaneously. Source: Yonhap News

Authorities Hold Overnight Meeting, "F4" Makes Emergency Appearance

As the domestic stock market plummeted for the second consecutive day, heads of economic and financial authorities decided to hold an emergency market situation review meeting on the evening of the 29th.

The Ministry of Economy and Finance informed the media that an emergency market situation review meeting hosted by Deputy Prime Minister and Minister of Economy Koo Yun-cheol would be held that evening. Attendees included Deputy Prime Minister Koo Yun-cheol, Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Li Yiyuan, and Financial Supervisory Service Governor Lee Chan-jin. This meeting is also known as the "F4 (Finance 4) meeting," signifying a gathering of heads of economic and financial authorities covering macroeconomy, monetary policy, and financial policy.

Consecutive Circuit Breakers: Unprecedented

The Korea Composite Stock Price Index (KOSPI) fell another 5.98% to close at 5,663.24 points, after plummeting 10.84% the previous day. The KOSDAQ Index fell another 6.12% to close at 662.68 points, after dropping 7.72% the previous day.

The Korea Exchange (KRX) activated the temporary suspension mechanism for program sell orders (sell-side circuit breaker) for both the KOSPI and KOSDAQ markets during trading hours. This marks the second consecutive day following the previous day. This situation is said to be unprecedented.

According to Korea Exchange data, the main board market has never experienced circuit breakers being triggered for two consecutive days. In the KOSDAQ market, circuit breakers were triggered on consecutive days twice—during the 2008 global financial crisis and during the 2011 U.S. credit rating downgrade.

Semiconductor Boom Peaking? "Good Performance" Fails to Hide Concerns

The market decline on the day was due to growing concerns over whether the earnings improvement trend of semiconductor companies leading the stock market, such as Samsung Electronics and SK Hynix, could sustain. SK Hynix stated that its second-quarter sales reached 79.3187 trillion won, a year-on-year increase of 256.8%, with operating profit growing 557.2% to 60.5426 trillion won. Despite announcing strong performance, concerns intensified over declining demand from major U.S. tech companies as Chinese companies continue to catch up.