KOSPI Plunges 5%, Samsung Stock Falls Despite Record Profits

South Korea's KOSPI index experienced a sharp decline, closing at 7656.31, down 395.02 points or 4.91% on July 7. The market saw extreme volatility, with the index dropping as much as 8% intraday, triggering both sell-side circuit breakers and trading suspension mechanisms. Major tech stocks like Samsung Electronics (-6.92%) and SK Hynix (-6.06%) also suffered significant losses.

Despite Samsung Electronics announcing its third consecutive quarter of record-breaking profits, its stock price plummeted. Analysts attribute this to elevated investor expectations and the fact that anticipated earnings were already factored into the stock price. Lee Byung-gun, head of DB Securities' research center, noted that while operating profit improved excluding provisions for performance bonuses, profitability in the non-memory and device experience/DX sectors appeared weak.

Foreign investors were major sellers, offloading about 2.9 trillion won in domestic stocks, marking their 13th consecutive day of net selling since June 19. This outflow contributed to the market's downturn. However, optimism for the semiconductor sector persists, with Hanwha Securities analyst Park Jun-young suggesting that Samsung Electronics has achieved structural improvements in areas previously considered weaknesses, such as HBM and foundry services.

The volatility was also amplified by single-stock leveraged Exchange Traded Funds (ETFs) based on Samsung Electronics and SK Hynix. Yuanta Securities analyst Lee Jae-won stated that the daily price swings of these two stocks, which constitute over half the market's capitalization, have led to increased KOSPI volatility. He concluded that while earnings were the trigger for the decline, the scale of the fall was amplified by leveraged and derivative trading.