KOSPI Suddenly Plunges Without Clear Trigger as Retail, Foreign and Institutional Investors Sell

The KOSPI opened strongly on Sept. 3, then abruptly lost ground around 2 p.m. and sank to 6,439.49. It later recovered most of the decline and ended 0.26% higher at 6,579.48, but the unexplained sell-off left market participants unsettled.

Institutional investors, particularly financial investment firms and pension funds, sold heavily. Institutional net selling briefly exceeded 1 trillion won. Individual investors sold about 900 billion won, foreign investors 400 billion won and institutions 200 billion won. It was the third consecutive trading day this week on which all three major investor groups sold stocks.

Some analysts pointed to renewed concerns about an escalation in the Middle East after Iran reportedly struck a U.S. military base in Kuwait. Yet falling U.S. Treasury yields and subdued oil prices offered favorable external conditions, making it difficult to identify a single clear trigger. The Nikkei 225 and shares in memory-chip company Kioxia also fell sharply at around the same time.

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Short-term supply and demand and investor sentiment are having a greater impact on the direction of the index, beyond fundamentals.

Lee Kyung-min of Daishin Securities said the market had become increasingly sensitive to external uncertainty, foreign futures selling and institutional cash-market selling. Short-term supply and demand, along with investor sentiment, were exerting more influence on the index than underlying fundamentals.

Samsung Electronics and SK Hynix also failed to recover their losses, closing down 0.20% and 1.05%, respectively. Other corporations, a category that includes their share buybacks, bought more than 1 trillion won in net terms and helped support the index, although analysts said buybacks had limited power to drive prices higher. The KOSDAQ fell 1.71% to 790.21 after failing to rebound, its first close below 800 since Aug. 7.

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The afternoon decline had a stronger character of reducing risk-asset positions because of the risk of an escalation in the Middle East than of rising oil prices or interest rates.