KOSPI Plunges at 2 PM, What's the Reason?

Although weekly options expiration supply and demand seem to have amplified the decline, considering the accompanying selling by pension funds, it's difficult to attribute it solely to expiration effects. Instead, it is interpreted as a combination of factors that increased intraday volatility.

A sharp sell-off began in the futures market from 2 PM, causing the KOSPI to plunge. This originated from foreign investors' futures position selling, with approximately 600 billion won in sales concentrated over 20 minutes. Such a large volume of sales in a short period suggests a high probability of algorithmic trading intervention rather than human trading.

When foreigners sell a large volume of spot stocks like Samsung Electronics, the price of those stocks drops sharply. At this point, if the futures become cheaper than the spot—a phenomenon called 'basis' (the difference between futures and spot prices)—institutional investors engage in mechanical arbitrage, selling their spot holdings and buying the cheaper futures. This institutional trading sometimes helped to cushion the sharp decline in the index by absorbing spot sales in certain segments.

Over the past week, the yen exchange rate plunged from 164 yen to 156 yen, indicating a shift to yen strength. Simultaneously, Japan's 10-year government bond yields reached 3%, a threshold the market perceives as critical. Yen strength leads to concerns about the unwinding of yen carry trades, which could act as a trigger for a synchronous decline across Asian stock markets.

When foreigners sold a large volume of futures, futures prices temporarily became cheaper than spot prices. In response, institutional investors engaged in arbitrage, buying the cheaper futures and selling the relatively more expensive spot. During this process, large spot stocks like Samsung Electronics and SK Hynix were sold in large quantities, causing the KOSPI index to plunge.

As Asian markets close and European markets open, international investors' trading concentrates during this time, leading to sharp volatility. Indeed, a large volume of trading occurred rapidly between 2 PM and 2:20 PM.

With the Bank of Japan's (BOJ) interest rate decision announcement approaching on the 17th, concerns about a 'big step' rate hike are growing. Japan has long maintained low interest rates, facilitating active yen carry trades where cheap funds were invested overseas. If the yen strengthens, more money would need to be repaid during the fund repatriation process, potentially leading to capital outflow from global stock markets. This could deliver a significant shock to Asian stock markets overall.

Therefore, if the market experiences an unexplained sharp decline, it is crucial to refer to comments and analysis reports released by analysts during market hours to understand the situation and formulate a response strategy.

At the KOSPI's peak on June 1st, daily trading volume reached 80 trillion won, but recently it has plummeted to around 18 trillion won, roughly a quarter. As market liquidity has become shallower, its defense against foreign selling has significantly weakened. With insufficient liquidity, the entire market has become highly vulnerable, now shaking significantly even from foreign selling that would have had little impact in the past.

Furthermore, the US-China AI hegemony war is acting as a significant long-term variable, making market recovery difficult to expect from simple yield rebounds alone.

The US Treasury Secretary asserts that America's debt problem is sustainable and can be overcome through technological growth. This is interpreted as a strategy to ultimately buy time for the growth of America's domestic AI technology. The US government views AI as a core element of national security and the future hegemony war, and despite somewhat difficult internal circumstances, it is focusing on securing AI competitiveness.

China is currently facing difficult economic circumstances but is growing rapidly in the AI sector. This is interpreted as possible because the Chinese people are enduring sacrifices, such as salary reductions, for the sake of national hegemonic competition. Chinese society has a strong atmosphere of readily accepting citizens' sacrifices to achieve national goals, and with the government's full support, it is accelerating AI technology development.

For stable growth in Asian markets, including Korea, a successful soft landing for the US economy is essential. If the US economy achieves a successful soft landing, it is expected to lead to the revitalization of the AI industry, bringing significant benefits to the semiconductor sector. America's strong AI competitiveness will also have a positive impact on economic peace and prosperity in the Asian region.

This will be followed by the Consumer Price Index (CPI) release on September 11th, which needs to confirm a downward trend in inflation. These two major economic indicators must align with market expectations for a green light on a possible interest rate cut at the September FOMC (Federal Open Market Committee) meeting.

Adjusting stock allocation appropriately based on market conditions can have a greater impact on returns. Especially now, it is time to first consider the 'value of money' and 'money bottlenecks.' During periods of rising interest rates, the investment environment is not favorable for risk assets, so a strategy of waiting for the next investment opportunity is needed.

Recently, Shinhan Financial Group recorded a new high, while Kiwoom Securities broke all moving averages and found support at the 520-day line, showing a contrasting trend. This suggests a shift in market funds from securities stocks to financial stocks like insurance and banking, as well as defensive stocks, since May. Securities companies face concerns of deteriorating performance due to decreased trading volume, while insurance and banks attract investor interest due to benefits from rising interest rates and their defensive characteristics. This change in fund flows is creating differentiated trends even within financial stocks.