South Korean stock market plummets over 33% this month, marking the worst monthly performance in history, surpassing the 27% drop during the IMF crisis in October 1997
The South Korean stock market has plummeted over 33% this month, heading towards its worst monthly performance ever, exceeding the 27% drop during the IMF crisis in October 1997 and the 23% drop during the global financial crisis in October 2008.
The KOSPI index has fallen about 34% from its June peak, with a market capitalization evaporating by over $2 trillion. Semiconductor heavyweight stocks are leading the decline, triggering multiple circuit breakers.
This event has driven Asian tech stocks to accelerate deleveraging, with funds flowing out of overvalued AI and chip sectors, dominated by foreign and retail selling, benefiting defensive assets and cash, while leveraged traders are under pressure.
Source: Public information
ABAB AI Insight
The South Korean stock market is highly concentrated in semiconductor giants like Samsung Electronics and SK Hynix. Following the AI boom that inflated valuations, competition from China, disappointing earnings, and large-scale foreign capital withdrawal have triggered a chain sell-off, with leveraged ETFs and retail positions amplifying the declines.
In terms of capital flow, foreign capital has net sold over 17 trillion won this month, motivated by realizing profits from the AI bubble and avoiding further corrections, shifting resources from highly concentrated tech stocks to more diversified or defensive assets, leading to an instant liquidity crunch in the market.
This resembles the monthly plunge patterns seen during the 1997 Asian financial crisis and the 2008 global crisis, currently in a phase of rapid reversal from a tech-driven bull market.
Essentially, this reflects capital concentration: a highly concentrated market capitalization structure makes a sell-off in a single sector evolve into a market-wide crash, as declines in heavyweight stocks directly drag down the index and trigger forced liquidations, thereby reconstructing the risk pricing mechanism of the South Korean stock market.
ABAB News · Law of Cognition
Markets with highly concentrated market capitalization are most prone to historic monthly declines.
Leveraged products are amplifiers of crashes, not buffers.
The speed of foreign capital withdrawal determines the depth of the decline.