The KOSPI has plunged more than 20% from its peak, and the stock market's vitality is cooling rapidly. Individual investors, once cited as the driving force behind the rally, have fallen into fear and are hesitant to buy, while their firepower — investor deposits — has also declined, raising the likelihood of a drop below 100 trillion won. As the market slides in a "no-questions-asked" plunge for which even experts cannot pinpoint a clear cause, the index's valuation has fallen to its lowest point since the 2008 global financial crisis.
According to the Korea Exchange on the 13th, the KOSPI's average daily trading value on a weekly basis peaked at 59.8994 trillion won in the first week of June (the 1st to the 5th) this year, then steadily declined to 37.2639 trillion won last week (July 6-10). This was the first time the weekly average daily turnover fell into the 30-trillion-won range since the third week of May (39.4776 trillion won), when the index had challenged the 8,000 level before sliding to 7,208.95.
Trading value is called an indicator of market activity. Typically, the more funds flow into the stock market, the greater the room for share prices to rise. From a technical perspective, the point where trading value peaks is regarded as the "peak" for the index and individual stocks, and when trading value enters a downward trend, share prices are judged to turn lower as well. Indeed, on June 22, when the weekly average daily trading value stood at 52.9617 trillion won, the index recorded an all-time high of 9,114.55 on a closing basis.
Since then, a vicious cycle has unfolded in which share prices have plunged and trading has dried up. Some in the industry analyze that the decline widened as buying by individual investors, who had supported the downside during every market drop, weakened. During June 1-5, when trading value peaked, individual investors accounted for 37.3% of total KOSPI trading, but during July 6-10, when trading value fell, that share slumped to 31.3%.
Investor deposits, referred to as funds waiting on the sidelines of the market, also stood at 105.5758 trillion won as of the 10th of this month, the lowest level since 104.1291 trillion won on February 20 this year. Deposits have declined for nine consecutive trading days since the 29th of last month (132.4697 trillion won), and given the scale of the decline that day, there is a possibility that the 100 trillion won threshold has been breached. The CEO of one securities firm said, "Market trading value has clearly been declining since last month," adding, "We judge that both the upward momentum in share prices and trading value have passed their peak."
As trading volume falls and the index collapses, valuations have dropped to their lowest level in history. According to FnGuide, the KOSPI's 12-month forward price-to-earnings ratio (PER) stood at 6.36x on a closing basis that day, close to the 6.3x recorded during the 2008 financial crisis. That figure is lower than the 7.5x during the COVID-19 pandemic in 2020 and the 7.6x during the U.S.-China trade conflict in 2018. By contrast, the outlook for corporate fundamentals remains solid, making the gap even wider. This year's operating profit forecast for KOSPI-listed companies stands at 970.8568 trillion won, up 5.27% over the past month.
Experts are lowering the "support line" at the bottom without offering a clear cause for the index's decline. Yang Hyung-mo, a researcher at DS Investment & Securities, said, "Since June, the market has been shifting from price formation premised on unconditional growth to a phase of reassessing capital efficiency and cash flow," adding, "The current market skepticism is interpreted as an adjustment phase for the next stage, but because the mountain was high, the valley is inevitably deep."
