The Kospi Index dropped by over 4% on Monday as the biggest constituent companies resumed their plunge. It dropped to 6,263 points, erasing some of the gains made on Friday, when it staged one of its best recoveries this year. It remains 33% below the year-to-date high.
Samsung and SK Hynix stocks plunge
The main driver for the Kospi Index’s retreat is Samsung Electronics and SK Hynix, its biggest constituents. The two stocks dropped by 8% and 7.57%, respectively, erasing some of the gains made on Friday. SK Square, which owns a large stake in SK Hynix, dropped by over 3%.
These stocks are falling as investors react to last week’s rescue of Leopold Aschenbrenner’s Situational Awarenesshedge fund, which had accumulated over $45 billion in assets under management (AUM). It was rescued by Ken Griffin’s Citadel, which bought many of its publicly traded stocks at a big discount.
While the rescue prevented a big sell-off in the AI industry, investors are likely concerned about more similar funds that are exposed to memory companies. This leverage concern is a big one, especially in South Korea, where households have taken debt worth billions of dollars to invest in these tech industries.
The ongoing retreat is also a sign that some investors believe that Friday’s rebound was a dead-cat bounce (DCB). A DCB is a situation where companies in a free-fall bounce back briefly and then resume the downward trend.
On the positive side, there are signs that Samsung and SK Hynix will continue doing well financially in the near term. For one, their biggest clients, who include big names like Google, Apple, Amazon, and Meta Platforms, have committed to continue boosting their investments.
Rising hopes of a US-Iran deal
Another positive aspect is that there is rising optimism that the US and Iran will reach a deal. President Donald Trump decided to halt the planned attacks during the weekend, citing outreach by key countries in the region like Saudi Arabia and Qatar.
These hopes have brought crude oil pricesmuch lower today, with Brent and the West Texas Intermediate (WTI) falling to $83 and $81, respectively.
A deal between the two countries would be bullish for the Kospi Index because it will lead to lower inflation in the country. It will also lead to reduced volatility in the market.
Looking ahead, traders will focus on the upcoming US earnings, including technology companies like AMD, Western Digital, and Kioxia. US will also release the July non-farm payrolls (NFP) data.
Kospi Index technical analysis
Kospi Composite Index chart | Source: TradingView
The daily chart shows that the Kospi Index bottomed at 5,279 units last week and then bounced back on Friday after the Situation Awareness rescue. It reached a high of 6,616 units, which coincided with the upper side of the descending channel.
The index has jumped above the 200-day Exponential Moving Average (EMA), a sign that bulls are prevailing for now. It has also moved to the Strong, Pivot, Reverse level of the Murrey Math Lines tool.
Therefore, the stock will likely be highly volatile this week. A rebound above the upper side of the descending channel will confirm more upside and point to more upside towards 7,500, the Major S/R pivot point.
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