South Korea's benchmark Kospi index fell more than 4% on Monday, reversing Friday's sharp rebound, as heavyweight tech stocks Samsung Electronics and SK Hynix resumed their slide. The index dropped to 6,263 points, giving back a chunk of the gains from its best one-day recovery this year. Even after the bounce, the Kospi remains roughly 33% below its year-to-date high.
Tech giants lead the decline
Samsung Electronics and SK Hynix, the two largest components of the Kospi, plunged 8% and 7.57%, respectively, on Monday. SK Square, a major shareholder in SK Hynix, also fell more than 3%. The sell-off follows last week's rescue of Leopold Aschenbrenner's Situational Awareness hedge fund, which had amassed over $45 billion in assets under management. Ken Griffin's Citadel stepped in to buy many of the fund's publicly traded stocks at a steep discount, preventing a broader AI-sector rout.
However, the rescue has raised concerns about other leveraged funds with heavy exposure to memory-chip makers. In South Korea, household debt tied to tech investments has reached billions of dollars, amplifying systemic risks. Investors worry that similar funds could face margin calls, triggering further volatility.
Monday's drop also suggests that Friday's rebound may have been a classic dead-cat bounce—a temporary recovery within a broader downtrend. Technical analysts note that the index had rallied to the upper boundary of a descending channel before stalling.
Fundamentals remain supportive
Despite the near-term turbulence, the financial outlook for Samsung and SK Hynix appears solid. Their largest clients—including tech giants like Google, Apple, Amazon, and Meta Platforms—have reaffirmed plans to boost capital expenditures, ensuring sustained demand for memory chips. This could provide a floor under the stocks once the current deleveraging wave subsides.
Another potential tailwind is the improving geopolitical landscape. Reports suggest the US and Iran are moving closer to a deal, with President Donald Trump halting planned strikes over the weekend after outreach from regional players like Saudi Arabia and Qatar. Oil prices have already reacted, with Brent and West Texas Intermediate falling to $83 and $81 per barrel, respectively. A US-Iran agreement would likely reduce inflationary pressures and market volatility, which would be positive for the Kospi.
Key events to watch this week
Traders will be closely monitoring upcoming US earnings from technology companies such as AMD, Western Digital, and Kioxia. The July non-farm payrolls report is also due, and it could influence global risk sentiment. Strong earnings and a solid jobs report might help stabilize the Kospi, while disappointments could exacerbate the sell-off.
From a technical perspective, the Kospi has climbed back above its 200-day exponential moving average, a bullish signal. It is also testing the Strong, Pivot, Reverse level on the Murrey Math Lines tool. A decisive break above the descending channel's upper boundary could open the door to further upside, with the next major resistance around 7,500. Conversely, failure to hold current levels might lead to a retest of last week's lows.
Given the confluence of earnings, macro data, and lingering leverage concerns, expect heightened volatility in the Kospi this week. Investors should brace for sharp swings in either direction.
This article is for informational purposes only and does not constitute financial advice.
