Kospi defies even bleakest forecasts on rock bottom and starts digging

Even the bleakest brokerage forecasts failed to predict the depth of the selloff as the benchmark Kospi briefly fell below the 5,300 mark on Wednesday.

Analysts who had only recently argued that the market was nearing a bottom are now warning that there is no floor in sight as the bourse nose-dived 5.98 percent to close at 5,663.24 after plunging to an intraday low of 5,262.77. The bourse has lost 2.11 quadrillion won ($1.5 trillion) just this month.

“Honestly, I have no idea,” a brokerage researcher who requested anonymity said when asked about the short-term outlook.

Market analysts described Wednesday's rout as a classic case of "capitulation selling," with investors abandoning their positions and eating steep losses in a wave of panic selling.

"What defines today's plunge is that investors are finally giving up, accepting losses and selling indiscriminately," Han Ji-young, a researcher at Kiwoom Securities, said. "Investor confidence has eroded to such an extent that the market no longer believes current valuations mark the bottom.”

Han had previously pegged 5,600 as a key short-term support level for the Kospi, in line with the index's 200-day moving average.

"The Kospi's forward price-to-earnings ratio has reached a historic low of 5.1 times, which indicates that the market has entered a bottoming-out phase,” Han said.

Wednesday’s decline to the 5,300 level, however, showed that rock bottom isn't the end; the market has proceeded to start digging.

Goldman Sachs had also projected a much higher bottom, identifying 6,800 as the market's critical support level in its July 14 report. It also warned that a sustained slide below the threshold could push the Kospi to 6,500 and eventually 6,000.

The market outpaced that prediction, plunging well below 6,000 just over two weeks after the Goldman Sachs assessment.

Analysts believe that the sell-off intensified after China’s CXMT staged a successful listing in Shanghai earlier in the week. They also cited the reported progress by Chinese state-owned firms in developing deep ultraviolet lithography semiconductor equipment as another factor.

The developments in China fueled concerns that Samsung Electronics and SK hynix could face more formidable competition in memory chips than previously thought, which weighed further on investor sentiment.

DB Securities identified the 5,300 to 5,700 range as the market's next major support zone.

"About 17 percent of cumulative trading volume is concentrated within the 5,300 to 5,700 range," Seol Tae-hyeon, a researcher at DB Securities, said. "Foreign investors also switched from net buyers to net sellers around these levels. This could pose a critical turning point that could determine the market's next direction."

However, that support level is already under pressure.

Analysts began questioning whether even high-volume trading concentrated in the mid-5,000s would hold after the index briefly slipped below 5,300 during Wednesday's session.

Kang Hyun-gi, another analyst at DB Securities, had identified 6,000 as the market's first support level and 5,500 as the second in Wednesday’s report. But in a later phone interview, Kang set 5,200 as the market's very last meaningful line of defense.

"The 5,200 level held even when the Iran war started, when multiple negative shocks hit the market all at once," the analyst said. "I still believe the market can stay above that level."

Kang argued that the market's decline reflects a broader shift in expectations for the future growth of Korean equities — not just a loss of investor confidence.

"As Chinese AI and semiconductor companies have emerged as stronger competitors, the market narrative has shifted from optimism to pessimism," the analyst said. “The market spent the first half of this year pricing in next year's outlook. Since midyear, however, investors have begun pricing in risks that may not materialize for several years.”

Some analysts believe the sell-off could eventually drag the Kospi below the 5,000 mark. Baek Young-chan, the head of research at Sangsangin Securities’ research center, estimated the index's downside range between 4,800 and 5,000.

"The market is likely to remain highly volatile as margin calls and forced liquidations of leveraged products continue," Baek said. "Unless a new external shock emerges — such as a sharp deterioration in exports or a sudden surge in the exchange rate — the 4,800 level, where the Kospi would trade at roughly five times forward earnings, should provide meaningful support."

BY JANG SEO-YUN [[email protected]]