KOSPI Breaks 6,000 and Triggers First Sidecar in Two Months: Why

The KOSPI fell more than 6% in a single day, losing 387 points.

After holding above 7,000 last week, the index shed 1,000 points within a week and dropped close to 6,000.

For the past two months, foreign investors have sold trillions of won every day. Over the same period, Samsung Electronics and SK Hynix carried out buybacks, absorbing the foreign selling and keeping the index from falling.

Samsung's buyback is estimated to have already ended, and Hynix's is expected to end soon. Without this positive factor, only trades between individuals and foreigners remain. If foreigners keep selling and individuals keep buying, individual investors could suffer heavy losses in the downturn.

Over the past two months, repeated V-shaped rebounds taught individual investors to buy every dip and profit. There are concerns that this learned behavior may not work in a true downturn.

The danger can be compared to the Mongol cavalry's 'mangudai' tactic: throwing out small spoils to lure the enemy into a trap. Stock markets can operate in the same pattern.

Samsung Electronics dropped over 7%, Hynix 8%, Samsung Electro-Mechanics 9%, and SK Square 12%.

Most of Korea's top market-cap stocks are linked to AI infrastructure and semiconductors, and the share of memory is far higher than in the US. That is why Korea falls by more when the sector sells off.

When investors expect prices to fall further, buyers wait on the sidelines and sellers try to cut losses in steps. This vicious cycle widens price swings.

The more popular stock investing becomes, the more people trade short-term patterns, which widens swings further. The frequent sidecars this year reflect how heated public sentiment has been.

Investors have begun questioning the profitability of the AI industry, and the era of unconditional investment is over. Industry leaders, including Broadcom's CEO, have started to point out that capital and rising cost of capital are urgent challenges.

There is also an outlook that the memory shortage could look different a year from now. This means the market no longer treats AI profitability as self-evident and has entered a stage demanding return on investment.

On top of that came fears about fiscal deficits, and interest rates rose on the back of bond issuance by AI companies. Several pressures are operating at once rather than a single factor.

AI data centers are viewed as long-term loan products similar to 30-year mortgages. As mortgage rates have topped 7% recently, home sales have hit their lowest level in 12 years, and high rates could also reduce demand for data centers.

Costs keep rising with memory chips, GPUs, labor, electricity, local opposition, and government regulation. Including environmental impact assessments and interest costs during permitting, the required investment is far higher than in the past.

Low-cost Chinese chips are pressuring the market: new chips keep high prices, but the prices of older models are falling quickly. This further erodes investment returns.

Profit margins at data centers currently in operation are not a problem. But doubts are growing about the margins of data centers yet to be built, because costs keep rising while unit prices fall.

Optimism has focused on the present and the near future, while concern about investment returns looks at capacity completing five years from now. Construction demand is still strong, but the clash between the two views is intensifying.

CXMT developed a next-generation server memory, DDR5 RDIMM, using a 4F-square DRAM cell structure. When it announced a launch by year-end, memory stocks plunged, and Micron fell as well.

The core of the technology is shrinking cell area to fit more cells on the same chip, raising data processing capacity. The layout changes from a horizontal arrangement at 6F-square to a vertical one.

Samsung Electronics and SK hynix are also developing similar technology, but their mass production plans remain undecided, and CXMT made the first announcement. As China, long seen as a step or two behind, showed signs of suddenly overtaking, the market was seized by fear.

Foreign investors are selling about 2 trillion won a day in quiet selling. Other corporations (presumed to be treasury-share buybacks) had typically bought a net 1.6 trillion won a day, balancing out foreign selling and making it possible to hold KOSPI above 7,000.

Buying from other corporations has collapsed. It now stands at around 70 billion won a day, and the pattern appears to be buying by share quantity rather than amount. As prices fall, the volume of other-corporation buying shrinks automatically.

Individual investors turned to buying, judging the price to be cheap, but if the decline continues, foreign investors will have sold at high prices and individuals will take the losses.

A V-shaped rebound is not guaranteed, and various patterns such as a stepped decline followed by a partial rebound exist.

War, Trump's remarks, and CXMT's new technology announcement are among too many variables beyond forecasting. In such conditions, it is necessary to build diversified portfolios across defensive, balanced, and aggressive types.