Kospi plunges as Broadcom shock-triggered 'Black Monday' erases more than $390B in value

"Black Monday" hit Korea's stock market, wiping out roughly 600 trillion won ($391.6 billion) in market value from the Kospi and Kosdaq in a single day.

The sell-off was triggered by a disappointing earnings report from the U.S. semiconductor company Broadcom, inflation fears, a weak won and elevated interest rates.

According to analysts, this downturn could persist in the near term.

The Kospi closed at 7,484.41 on Monday, down 8.29 percent from the previous session. The index fell below both the 8,000 and 7,500 thresholds in a single day.

As panic selling intensified, authorities activated a circuit breaker, which halted trading on the Kospi and Kosdaq for 20 minutes, and a sell-side sidecar, which temporarily suspended program sell orders. Monday marked the first circuit breaker since March 4, shortly after the outbreak of the Iran war.

The Kosdaq also plunged 9.08 percent to close at 911.39.

Broadcom's earnings announcement on Tuesday caused stocks to plunge. The company's second-quarter results fell short of market expectations, and its third-quarter guidance was revised lower, fueling concerns that the semiconductor sector had reached its peak.

Fear-driven selling spread to chip stocks in Korea.

Samsung Electronics fell 18.03 percent over the three trading days following the Broadcom shock — between Thursday and Monday — and SK hynix fell 19.02 percent. Both stocks dropped below their 20-day moving averages, a signal often interpreted as the start of a short-term downtrend.

The dollar-won exchange rate, which climbed to the 1,560 level during trading on Friday, also encouraged foreign investors to sell. They net sold 373.9 billion won worth of shares on the Kospi on Monday, extending their selling streak to 21 consecutive trading sessions since May 7. Institutional investors net sold 1.62 trillion won, while retail investors net purchased 1.76 trillion won worth of stocks.

Analysts said the greater concern is that several risk factors remain unresolved.

Even securities firms that had previously maintained bullish views on the Korean stock market have begun to express concerns. LS Securities said on Monday that the Kospi could fall more than 20 percent from its peak.

"No clear bottom signals have emerged from the current sell-off," analyst Jung Da-woon of LS Securities said. "Additional volatility could come from SpaceX's listing on Friday, the U.S. Federal Open Market Committee meeting set for June 16 and 17 and the U.S. midterm election campaigns that will be held around […] July 4."

Bloomberg also reported on Sunday that "a wave of optimism over […] Korean stocks is giving way to growing caution."

Hong Kong-based hedge fund Golden Horse Fund Management has reduced Korean equities in its portfolio and adopted a defensive strategy using derivatives.

"The debate isn't whether the Kospi story remains attractive," said Tanvir Sandhu, the global chief derivatives strategist at Bloomberg Intelligence, to Bloomberg on Sunday. "It's how to stay invested without giving back a portion of the gains."

The V Kospi, often referred to as Korea's fear gauge, closed at 76.63 on Monday. This is the index's highest level since March 4, when it reached 80.37.

The Kospi fluctuated 3.9 percent on average each day last week, higher than the 3.7 percent average in March when the war broke out. Throughout this year, the Kospi fluctuated by an average of 3 percent.

Daily fluctuations of 4 percent or more have historically been associated with periods of severe market volatility, including during the 1997 Asian financial crisis, when the figure reached 5.7 percent. The figure hit 7.4 percent during the global financial crisis in 2008 and 4.9 percent during the Covid-19 pandemic in 2020.

Analysts also warned that the growing scale of margin-financed investing could accelerate further declines in an already volatile market.

Outstanding margin loans exceeded 38 trillion won for the first time on May 29 and have since remained above that level. If stock prices continue to fall, forced liquidation triggered by insufficient collateral could create a cascade of additional selling pressure.

Forced liquidations in the Kospi market totaled 113.6 billion won on Monday. Cumulative forced liquidations during the first five trading sessions of this month reached 287.4 billion won.

Market concerns have been amplified by the stock market's heavy concentration in semiconductor shares.

Samsung Electronics and SK hynix accounted for a combined 52 percent of the total Kospi market capitalization on Monday, exceeding half of the Kospi's total value. Single-stock leveraged products tied to the two companies have further amplified volatility.

"When a market becomes excessively concentrated in a single sector, increased volatility inevitably shakes the entire index," Kim Seok-hwan, an analyst at Mirae Asset Securities, said. "On the other hand, as long as the AI investment cycle and memory demand remain intact, it's difficult to say that the long-term earnings outlook for the stock market has fundamentally deteriorated."

BY JANG SEO-YUN, PARK YU-MI [[email protected]]