Korean Stock Market Drops for Five Consecutive Months

Both KOSPI and KOSDAQ declined for five straight months from July to November this year, marking the longest consecutive monthly downturn since the 2008 financial crisis. If the downturn continues into December, it will match the record set during the global financial crisis and the dot-com bubble of 2000. Financial investment experts attribute the lack of optimism for a year-end “Santa rally” to policy uncertainties surrounding the Trump re-election and recession fears, advising a short-term investment strategy focused on defensive stocks.

According to the Korea Exchange on Dec. 2, the KOSPI index fell by 100.24 points, or 3.92 percent, in November alone. Meanwhile, the KOSDAQ index plunged by 8.73 percent during the same period. Both indices have declined for five consecutive months since July, marking the longest downturn since the six-month decline from June to November during the 2008 financial crisis. The longest consecutive declines in the history of the South Korean stock market were six months, recorded during the IT bubble of 2000 and the global financial crisis of 2008. Even during the Asian financial crisis in 1998 and the credit card meltdown in 2002, declines were capped at four months.

What makes this decline even more shocking is that it differs significantly from 2008. During the 2008 financial crisis, major indices worldwide, including South Korea, experienced declines. In October of that year, when fears of a recession peaked, the KOSPI fell 23.13 percent, the KOSDAQ plunged 30.12 percent, the S&P 500 dropped 16.94 percent, and the NASDAQ fell 17.73 percent.

However, in the second half of this year, the declines in South Korea’s stock market stand out sharply. According to Investing.com, the S&P 500 rose 10.47 percent, and the NASDAQ index climbed 8.38 percent from July to November, continuing their upward trend despite debates over whether they had reached their peak. Meanwhile, China’s Shanghai Composite Index increased by over 12 percent. In contrast, Japan’s Nikkei 225 fell by 3.47 percent, but its decline pales in comparison to the KOSPI’s 12.22 percent drop during the same period.

Market analysts cite several factors as reasons for the domestic stock market’s collapse in the second half of the year, including fears over the unwinding of yen carry trades and heightened uncertainties surrounding the Trump re-election. Additionally, the Bank of Korea’s surprise interest rate cut on Nov. 28 signaled an economic slowdown, further dampening sentiment. While exports in November rose by 1.4 percent year-on-year, exports to major markets like the United States and China fell by 5.1 percent and 0.6 percent, respectively, adding to the unease.

Particularly noteworthy is the impact of Samsung Electronics, which accounts for 16 percent of the KOSPI’s market capitalization. Over the past month, Samsung Electronics’ stock price fell by 8.46 percent, more than twice the KOSPI’s overall decline. Foreign investors sold Samsung Electronics shares worth 3.94 trillion won (approximately $2.81 billion) in November alone, accounting for 90 percent of all foreign investor sell-offs in the main stock market.

The problem is that a short-term rebound appears unlikely. While the semiconductor market, centered on the artificial intelligence (AI) ecosystem, is expected to boom next year, Samsung Electronics has lost its leadership in the high bandwidth memory (HBM) sector, and the price of legacy semiconductors fell by more than double digits last month, signaling a downward cycle. Lee Seung-woo, a researcher at Eugene Investment & Securities, pointed out, “Samsung’s weakened competitiveness in HBM has tarnished its image as a leader in technology, raising doubts about its long-term growth prospects as a tech company. Its stock performance is now among the weakest globally.”

As a result, expectations for the traditional December Santa rally are fading. Typically, December sees positive stock market returns due to dividend-related arbitrage trading, where investors buy stocks to receive dividends and sell futures, combined with the so-called “New Year effect.” However, experts widely believe that achieving such gains this year will be difficult. They advise focusing investment strategies on industries such as software, telecommunications, and healthcare, which are less affected by economic downturns and tariffs. Yu Myung-gan, a researcher at Mirae Asset Securities, advised, “A short-term investment strategy focused on defensive stocks is more favorable than investing in cyclical stocks.”