Korea Crashes Most In Years: What Happens Next?

It was two days ago, around the time Kospi was making fresh all time highs, up more than 50% since the start of the year (see "What's Behind The Explosive Surge In Korean Stocks: 3 Things"), when we showed that the euphoric investor pile up in the main Korean index was screaming a "get me out of here" warning.

Korea ETF volume pic.twitter.com/9PSDyTXyHJ

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And appropriately so because what followed hours later, was one of the biggest crashes in memory chip, pardon Kospi history. 

Overnight, the Korean stock market (where just two memory stocks account for roughly 40% of the Kospi) suffered its worst day since the August 2024 Carry Trade crash (worse than last year's Liberation Day) plunging -7.9%, after returning from a long weekend break. The move lower was so unrelenting it triggered multiple circuit breakers.

In night session, Kospi futures continued to slide, plunging as much as -15% vs Friday’s close trading below 810 at today's session lows.

Korea's two "generals", SK Hynix and Samsung Electronics, were both down around 10%. Goldman's Delta One head Rich Privorotsky writes that it's hard to pin a clean catalyst other than to say Asia had priced zero probability of a sustained spike in oil/lng or any serious disruption in the Strait of Hormuz. Given the region’s structural dependence on imported energy, that always felt complacent.

There has also been a meaningful build up of speculative length, particularly from Korean retail, which likely exacerbated the move. It’s a very crowded trade and could bleed into positioning more broadly. 

Which is why it could get a lot worse. According to Goldman trader Fred Yin, a combination of 1) the “cockroach moment” last Friday on private credit concerns and 2) geopolitical tensions given weekend US/Iran headlines, mean Kospi had/has a lot of “catch down” to do, meanwhile FX move also amplified the pressure: KRW had one if its biggest drops vs USD in over a year (+2.7% to 1472.35).

Meanwhile, foreigners continue to be a big driver of outflow, net selling Kospi stocks for 9 sessions in a row with US$3.5b alone today (after a record sale last week), mostly driven by tech and transportation equipment.

Local institutions also net sold, but on a smaller scale. And while the big guys sell, retail bought $4BN in KOSPI, but it wasn’t enough to turn the tide. On the Goldman pad, Korea was the largest net sold market across the region, clients were 1.9x skewed better to sell, with supply concentrated in Semis from both LOs and HFs, but did not witness panic selling. 

Where does this leave us? Despite the plunge, Goldman is confident that the bullish thesis is still intact:

• Oil impact to Korean economy is limited compared to other EMs
• Surging exports underscore strong earnings for key memory firms
• Severe memory chip shortage to persist in the near future
• Positioning lighter given sell off, retail investors looking for opportunities

The trade Goldman's Fred Yin likes here involves selling KI 95% put to fund an ATM / 130% call spread in 6mon tenor, where the KI level for KOSPI would be below 2026 opening level – e.g. the short 95% put only “appears” if KOSPI goes negative on the year. 

Some more points: 

While uncertainties for higher oil prices negatively impact most EM economies, Korea is amongst the least affected. In addition, with strong pricing power, SK Hynix and Samsung Elec are likely to pass through costs increases.

Feb export smashed new records, semiconductor exports +22.5% MoM
Memory export growth has gone parabolic in the last 6 months, with no signs of slowing down:

• Sep +35% YoY
• Oct +48% YoY
• Nov +60% YoY
• Dec +64% YoY
• Jan +154% YoY
• Fed +262% YoY

Despite strong performance YTD, foreign institutions continue to net sell Korea in record amounts... 

...but keep an close eye on what retail does. This cohort has flipped to net buyer YTD, after selling US$18b last year. The bigger problem is what happens when it resumes selling again.

And while active trading accounts at ATH, having soaked up all the liquidity from bitcoin sales ...

... margin balance to market cap ratio is still at 5y lows, e.g. retail still have a long way to go to make up lost time.

More in the full Goldman note available to pro subs.