The KOSPI, on the verge of retaking the 6,700 line, tumbled about 3% within roughly 10 minutes in the afternoon before barely closing higher. Asian markets broadly fell and then rebounded on concerns over a widening Middle East conflict and fears of yen carry trade unwinding tied to Japanese rate increases, but analysts also say the KOSPI is swinging unusually hard on minor negative news because its underlying strength has weakened.
The KOSPI closed at 6,579.48 on the 3rd, up 0.26% from the previous session, according to the Korea Exchange. The index had climbed as much as 1.83% early in the session on stabilizing U.S. Treasury yields and strength in technology shares, but reversed to a 1.88% loss within about 10 minutes around 2 p.m., sinking to 6,439.49. The gap between the session high and low reached 243.48 points.
Foreign media reports of a suspected Iranian attack on a U.S. military base and the possibility of a 50 basis point big step by the Bank of Japan (BOJ) are cited as triggers for the intraday plunge. One basis point equals 0.01 percentage point. Japan's Nikkei 225, Taiwan's stock market and U.S. Nasdaq 100 futures fell sharply as a result, and prices of KOSPI 200 put options more than doubled, spreading a brief panic into the derivatives market.
Analysts said the market's weakened footing caused a supply-and-demand shock. On the KOSPI that day, individuals sold a net 955 billion won, foreign investors 419.5 billion won and institutions 215.2 billion won, while only other corporations bought a net 1.5936 trillion won, backed by share buybacks at Samsung Electronics and SK hynix.
"The Iran issue was reported in the morning and oil prices did not move much," said Kang Jin-hyuk, an analyst at Shinhan Securities. "As the yen strengthened sharply to around the 156 level, anxiety over yen carry unwinding spurred institutional selling." Seo Sang-young, an executive director at Mirae Asset Securities, said the market's constitution has weakened to the point that volatility rises even on small issues such as yen movements, amid thinner trading volume.
