South Korea holds emergency meeting to rescue the market: excessive stock market declines may trigger contingency plan if necessary

The South Korean stock market suffered a major blow on Thursday, with both the KOSPI and KOSDAQ plunging over 8%. Circuit breakers were triggered on both exchanges, prompting emergency intervention by regulators.

According to South Korean media outlet News1, the Financial Services Commission convened an emergency response meeting at 2:30 p.m., chaired by Commissioner Lee Won-geon, to assess the sharp market downturn and increased volatility, and to discuss financial market stabilization measures. This marks the first time since July 29 that South Korea’s two main stock indices have simultaneously triggered circuit breakers on the same day.

The immediate trigger for the decline was the spillover of concerns about investment returns and financing conditions for the U.S. artificial intelligence industry into the South Korean market. The higher-than-expected U.S. Consumer Price Index (CPI) for September released overnight drove U.S. Treasury yields higher, further intensifying financing pressure on AI infrastructure companies and dampening investor sentiment.

As of this report, the Korea Composite Stock Price Index (KOSPI) had extended its losses to 9%, currently standing at 5,465.03 points. On the stock front, SK hynix slid over 12%, reaching its lowest price since April 27. Samsung Electronics dropped more than 11%.

Amid rapidly escalating market volatility, the Financial Services Commission quickly activated an emergency response mechanism. The meeting undertook a comprehensive review of the causes of the market downturn and the current situation, and discussed measures to stabilize financial markets.

South Korean financial regulators held an emergency meeting on the stock market and issued an official statement, calling for proactive measures to ensure market stability and protect investors.

The statement urged financial institutions to avoid excessive lending, strengthen investor protection and risk management, and warned of strict action against market disruptors, with contingency plans ready if necessary.

Bodies and market experts stated that given global interest rate hike expectations, uncertainties over AI semiconductor investment and profits, and rising oil prices, the stock market may be overreacting in terms of the speed of the decline and capital flows. Authorities intend to take tough measures against activities that disrupt the market, including false rumors, manipulation, and illegal short selling.

According to data from the Korea Exchange, the KOSDAQ market was the first to trigger a Level 1 circuit breaker at 12:23 p.m., followed by the KOSPI index dropping 8% from the previous trading day to 5,528.05 points at 12:38 p.m., which halted trading on the securities market for 20 minutes. Prior to this, the "sidecar" program trading mechanism on both exchanges had already been activated, but selling pressure persisted and ultimately led to the triggering of circuit breakers.

This is the first time since July 29 that both the KOSPI and KOSDAQ have triggered circuit breakers on the same trading day, underscoring current market fragility. The high-level emergency response from regulators shows that authorities are closely watching the potential impact of market volatility on financial stability.

Foreign investors were the main drivers of the latest decline. On the day, foreign investors posted net sales of 2.9013 trillion Korean won in the KOSPI market, marking their eighth consecutive trading day of net selling. Meanwhile, retail investors and institutional investors recorded net purchases of 1.2170 trillion and 1.2701 trillion Korean won respectively, partially offsetting the foreign selling pressure.