South Korea’s stock market, which was the fastest growing in the world in the month of June, has now started panting badly. After reaching its all-time high on June 22, within just a few weeks the market took such a dive that investors were left in a tizzy. The situation is such that the major index Kospi has fallen by 20 percent from its highest level and has officially fallen into the grip of a bear market. This huge fall has created panic in the Asian markets. Let us understand what happened suddenly that broke the back of this strong market.
Market flying like a rocket, sudden crash
If we look at the figures, the seriousness of the situation can be easily understood. On July 7, a huge fall of 8 percent was recorded in the South Korean market. The very next day, i.e. on July 8, this selling storm did not stop and Kospi fell by more than 5 percent. The market which till just a few days ago was considered to be the safest and favorite destination for investors across the world to earn money, has started falling apart like a house of cards. A 20 percent crash in just less than a month is a big blow to any market.
There was havoc in the shares of big tech companies
At the center of this unprecedented decline are those big companies related to Artificial Intelligence (AI), which had carried the market on their shoulders in the last one year. In the trading session of July 8, shares of the market’s largest company Samsung Electronics fell by 6.3 percent. At the same time, the shares of another big chip manufacturing company SK Hynix also saw a sharp decline of 5.7 percent. The share of these two companies in the Kospi index is about 60 percent. In such a situation, when the shares of these giants faltered, the entire market was sure to collapse.
Shares that made investors rich crashed
The picture before the collapse was completely different. Foreign investors had invested heavily in these companies regarding the future of AI. The result of this was that in the last one year, the shares of Samsung Electronics had risen by 351 percent, which more than tripled the investors’ money. SK Hynix had broken all records in terms of returns. Its shares had jumped 636 percent in a year, which means investors’ money had increased more than six times. Apart from this, a spectacular rise of 166 percent was recorded in LG Electronics and 119 percent in Hyundai Motor. But now this fast pace has become a problem for the market.
Withdrawal of foreign investors became a major reason
Market experts believe that the valuations of these shares had increased too much. When a stock rises so much in a short period of time, it is natural for its high valuation to be questioned and for it to undergo a correction. Along with this, there has been a lot of pressure on the shares of AI related companies in the American stock markets also. This slowdown in tech stocks in America has had a direct impact on the chip manufacturing companies of South Korea. Due to doubts arising regarding the future profits and sales of these companies, foreign investors have started booking profits extensively. Under this heavy selling pressure, South Korea’s market is continuously closing in the red.
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