Korean stock markets take largest loss in 7 years on Wall Street plunge

South Korea’s stock markets were routed Thursday following a plunge in stocks at Wall Street amid surfacing doubts about current tech stock valuations in the United States and fears on lingering US-China trade war threats.

Analysts said the market correction in the US triggered a ripple effect on Korean stock markets along with other Asian stocks, drawing concerns about what they call “the biggest external market risk.”

Both the top-tier Kospi and the second-tier Kosdaq suffered the largest fall in seven years. Kospi dropped 4.4 percent to close at 2,129.67 Thursday, while the Kosdaq retreated 5.4 percent to close at 707.38. Losers dwarfed gainers in both markets -- 865 to 23 and 1,180 to 60, respectively.

Kospi and Kosdq took the largest losses since November and September 2011, respectively, while the closing marks were the lowest since April and September 2017, respectively.

Market bellwether and electronic device maker Samsung Electronics took 4.9 percent losses from a day prior, while chipmaker SK hynix slid 1.9 percent. Giant biotech companies Celltrion and Samsung Biologics fell 5.2 percent and 4.3 percent, respectively. Hyundai Motor shed 3.3 percent. 

On Kospi, foreign investors net sold shares worth 486.8 billion won ($425.3 million), while Kosdaq, which embraces heavy retail investment, saw net sales of shares worth 271.4 billion won by retail investors.

Both the Kospi and Kosdaq hit the lowest points in 2018 the previous day, closing at 2,228.61 and 747.50, respectively.

This came after bearish US stock markets on Wednesday. The broad-based S&P 500 index sank 3.3 percent, while tech-heavy Nasdaq composite gave up 4.1 percent from the previous day‘s close. US tech giants Apple and Amazon tanked 4.6 percent and 6.2 percent, respectively. 

“The US market correction was deemed the biggest short-term risk in the Korean market, because Korean stock markets are unlikely to bear it by themselves, regardless of the attractive valuations they have,” Kim Il-hyuk, a strategist at KB Securities, wrote in a note Thursday.

There are concerns about US tech stocks’ overvaluation as costs of tech giants are expected to soar on narrowing profit margin and security infrastructure improvement, coupled with China‘s tariffs on US goods. Analysts say the trade war threat is unlikely to be dispelled until the US midterm elections in November.

Added to the downside pressure on stock markets are US Fed Chair Jerome Powell’s hawkish comments last week that point to an additional rate hike this year, which subsequently sent the 10-year US bond yield to a seven-year high.

“A market correction can take place without signs of weakening economic fundamentals and indicators of recession like yield gap (in the US),” Yoo Seung-min, chief strategist at Samsung Securities, wrote in a report Thursday. “If tech stocks in the US that have led an upward cycle begin to fear a decreasing profit margin, there is no other alternative in the US stock market.”

Yoo added the Korean market needs a “conforming strategy” to brace for the risks, because the timing of a market correction was unfavorable.

By Son Ji-hyoung
(consnow@heraldcorp.com)