Kospi Falls More Than 8%, Breaks Below 5,000 as Trading Halt Triggered
Key Facts
The Kospi fell more than 8% in early trading on Friday, November 6, dropping below 5,000 for the first time in nine months, according to a Reuters report published by MarketScreener. The Korea Exchange activated a trading halt at 9:03 a.m. local time, suspending stock and derivatives trading for 20 minutes. The decline came amid a selloff led by chip and technology stocks, pushing the index below 5,000. The index had closed at 5,383.8 in the previous session, on November 5, according to EL7 data. Shares of major chipmakers posted steep losses as selling intensified across the market.
Samsung Electronics fell 10% in early trading, while SK Hynix lost 13%, according to Reuters. The losses at both companies put chip stocks at the forefront of the selloff weighing on the index. “The time is right for a correction, but we feel there may be some overreaction to the outcome of the U.S. midterm elections,” said Kwon Kwang-woo, president of the Institute for Global Economics and a former head of South Korea’s National Pension Service. Kwon linked the possibility of a correction to investors’ reaction to the election results. His comments came as South Korean shares faced a sharp decline and the trading halt was in effect.
Against the backdrop of concerns about forced selling, the Financial Supervisory Service had warned on October 27 that excessive growth in margin financing could trigger a broad selloff if share prices fell sharply. The agency ordered brokerage firms to tighten their management of margin financing, according to ChosunBiz. The agency said the accumulation of margin loans could leave investors more vulnerable to forced selling when prices decline. The margin financing balance stood at 3.8 trillion won at the end of May, before falling to 3.03 trillion won on October 22, according to an agency official. The agency also said it could impose additional regulatory measures if self-regulatory steps were insufficient.
On November 2, four institutions put forward a roadmap to shorten the stock settlement cycle from two trading days to one, targeting implementation in 2028, according to ChosunBiz. Under the plan, proceeds from stock sales would be available the next day after one business day. The deadline for covering a margin shortfall would also be reduced from two trading days after a transaction to one trading day. Forced selling in the event of non-payment would move forward from three trading days after the transaction to two trading days. The plan includes changes to deadlines for covering shortfalls and forced selling as part of the move to a shorter settlement cycle.