[Stock Market Analysis] Analysis of KOSPI's 6% Plunge: AI Bubble Theory and Interest Rate Uncertainty

                                              

       

[Stock Market Analysis] KOSPI Plunge and AI Bubble Theory

       

The KOSPI, which had been soaring throughout the second half of the year, saw a sharp decline of over 6% intraday in a single day, causing investor sentiment to cool rapidly. In this post, we analyze the key causes that led to the KOSPI plunge based on data, and examine the points investors should check during this short-term Adjustment period.

   

   

Analysis of KOSPI's 'Black Wednesday': AI Bubble Theory and US Interest Rate Uncertainty Response Strategy

   

1. Overview of the KOSPI Plunge and the Scale of the Shock

   

Recently, the KOSPI dropped below the 4,000 level intraday and sharply fell to the 3,800 range at once. It showed an unusual Volatility with a sudden drop of about 350 points in a single day. Notably, as the decline widened in a short period, a Sell Sidecar was activated simultaneously in both the KOSPI and KOSDAQ markets.

   

The shock of the plunge was led by foreign investors, who engaged in massive net selling right after the opening, driving the index lower. Large-cap technology stocks, including Samsung Electronics and SK Hynix, which were the main pillars of the KOSPI's rise, experienced a steep decline of 7-9% intraday, escalating market anxiety.

              

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2. Three Key Drivers that Caused the Market Plunge

   

This plunge is analyzed as the result of a combination of external negative factors that erupted amidst the fatigue from the short-term surge. The key drivers can be summarized into three major points.

   

       
• First, the direct hit of the US-led AI Bubble Concerns.
  As AI-related technology stocks, including Nvidia, plummeted in the New York stock market overnight, the Valuation burden on domestic semiconductor and technology stocks, which had risen excessively in a short period, became a reality. Uncertainty was amplified regarding whether the expectations for AI technology would actually lead to tangible performance.
       
• Second, the retreat of US Fed Interest Rate Cut expectations.
  Risk-averse sentiment was reinforced as uncertainty grew regarding the Federal Reserve's (Fed) additional benchmark interest rate cut in December. The retreat of interest rate cut expectations leads to a rebound in bond yields and expansion of foreign exchange market volatility, which puts a burden on the stock market.
       
• Third, profit-taking pressure from foreigners following a short-term surge.
  As the KOSPI had experienced a historical sharp rise in a short period and continued its all-time high rally without a price adjustment, the desire for Profit Taking among foreign investors was maximized. When the AI bubble theory erupted amid a lack of new positive news, foreigners turned to massive net selling.
   

   

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3. Future Market Outlook and Implications

   

It is a crucial point of judgment whether this plunge is a phase of short-term overheating resolution or the beginning of a medium-to-long-term Trend Reversal. Many experts lean towards the view of short-term overheating resolution without a change in Fundamental factors. However, portfolio stability must be re-examined during periods of heightened volatility.

   

While the AI and tech stock Momentum has not completely broken, a sharp decline can cause psychological stress to investors and induce market exit. Therefore, in an environment of high volatility, it is advisable to consider a Dual Momentum strategy that flexibly responds to market conditions or an Asset Allocation strategy that manages risk, rather than a 100% stock strategy, to steadily grow assets.

   

▶ Reference: View Permanent Portfolio Asset Allocation Strategy Backtest Results

   

Consequently, while this plunge may serve to ease the market's Valuation burden in the short term, a period of short-term Volatility is likely to continue until uncertainty about US interest rates or the debate over AI performance is resolved. It is time for investors to observe the market and respond with a cool-headed perspective.

   

        Key Summary:
        The main causes of the KOSPI plunge are foreign profit-taking due to the AI Bubble Theory and Interest Rate Cut Uncertainty. This is judged to be a resolution of short-term overheating, but risk management strategies such as asset allocation must be re-examined in preparation for high Volatility.    

   

       

The content of this blog is for reference regarding investment judgment only, and investment decisions must be made under individual judgment and responsibility. In no event can the information in this blog be used as evidence for legal liability regarding investment outcomes.