South Korean equities have come under heavy selling pressure once again, but this time the most important source of buying support that had been propping up the market has already exhausted itself.
According to a JPMorgan South Korea equity strategy report dated October 19, 2026, the KOSPI recorded a five-day decline of more than 15% last week, the third time this year it has hit that threshold, with the previous two episodes occurring in March and July. Unlike the prior two rounds, Samsung Electronics has completed its share buyback program and SK Hynix's repurchase is also nearing its end 鈥?the corporate buyback force that had served as the market's most stable marginal buyer since late August is now shifting from slowing down to exiting entirely.
JPMorgan noted that the KOSPI's forward price-to-earnings ratio is currently at a record low, standing at just 8.4 times when the memory segment is excluded, which places it in the 11th percentile historically. Technical indicators also show the 14-day RSI has fallen to its lowest level since Liberation Day, with the proportion of oversold stocks expanding to extreme levels.
The bank maintained its structurally bullish stance on South Korean equities over a 6-to-12-month horizon, but also pointed out that the repair of capital imbalances and global risk-aversion sentiment will still take time, tactically remaining cautious through the end of October.
Buyback Exit: The Fundamental Difference Between This Plunge and the Previous Two
Three sharp declines may look similar on the surface, but the underlying logic has undergone a critical shift.
During the March and July downturns, corporate buybacks provided sustained support. Since late August, the repurchase programs of Samsung Electronics and SK Hynix have been the market's primary source of flow. This latest decline, however, coincides precisely with the fading of that support 鈥?Samsung Electronics' buyback program has been completed and SK Hynix's is close to completion.
The JPMorgan report noted that this downturn initially began alongside the slowdown in corporate buybacks, then accelerated due to swings in global AI sentiment, and further triggered technical selling after the KOSPI broke below its 200-day moving average. These three factors overlapped, and the previously most stable marginal buyer no longer had the capacity to absorb supply 鈥?this is the most essential difference between this round and the previous two.
Capital Map: Who Is Selling and Who Is Waiting
From a capital structure perspective, the current market exhibits a clear pattern of "sellers dominating while buyers stand on the sidelines."
On the foreign investor side, JPMorgan observed continued selling of AI-related stocks at the regional level, with outflows from the Taiwan market even larger in scale; trend-following investors, meanwhile, have sharply reversed from extreme long positioning earlier in the year, with their exposure to the South Korean market significantly compressed.
On the retail side, with the KOSPI falling below the estimated average cost of this year's net purchases, retail investor sentiment is extremely fragile, constituting a potential source of sustained selling pressure.
As for leveraged ETFs, although assets under management have shrunk substantially from their peak, existing shares have not yet seen significant redemptions, and they still amplify selling pressure on days of sharp declines 鈥?especially given that current trading volumes are far below June's highs, an effect that is further magnified.
On the institutional side, domestic institutional inflows from pension funds and securities firms have both been relatively limited; long-only institutional investors (LO investors) have the willingness to buy but have made clear they will wait for volatility to subside before entering.
Why Non-Memory Sectors Fell in Tandem
The root of the capital problem is concentrated in the memory segment 鈥?buybacks ending, sentiment deteriorating, leveraged ETF repositioning 鈥?but South Korean stocks excluding memory also declined, albeit more moderately.
JPMorgan believes this portion of the decline is not directly related to global AI sentiment and instead constitutes an independent investment opportunity. Excluding Samsung Electronics, SK Hynix, SK Square, SK Inc and Samsung C&T, the KOSPI's forward P/E is just 8.4 times, sitting in the 11th percentile historically, with valuations already in an extremely undervalued range.
More importantly, EPS estimates excluding memory are still being revised upward continuously, with industrials, financials and healthcare leading among the large sectors. This means the decline in non-memory sectors is more of a "collateral damage" from structural capital imbalances rather than a reflection of deteriorating fundamentals.
Tactically Cautious, Structurally Bullish Over the Medium Term
In its report, JPMorgan maintained the tactically cautious stance it has held since mid-September and reiterated its view on risk appetite through the end of October: "From mid-September to the end of October, the start of the rate-hiking cycle, elevated long-end yields, a stronger yen weighing on carry trades, elevated oil prices, and pre-US-midterm-election seasonal weakness will continue to suppress risk appetite. The Quality factor and the financials sector are the best hedges during this phase."
Over a 6-to-12-month horizon, however, the bank maintained its structurally bullish view on South Korean equities, citing reasons including continued expansion of AI capital expenditure, growth in security and resilience spending, progress in corporate governance reform, and support from liquidity surpluses.
Near-term key catalysts listed by JPMorgan include: memory companies' third-quarter earnings and updates to shareholder return plans (with a verification window before October 31, 2026), a decline in VKOSPI volatility, hyperscaler earnings, and the recovery of global risk appetite after the US midterm elections.
The bank also flagged disconfirming risks: if foreign net selling spreads from the memory segment to non-memory sectors, or if the upward EPS revision trend excluding memory turns into downward revisions, then the current framework explaining capital imbalances would be weakened, and the structurally bullish stance would also need to be reassessed. The full verification window is set for November 15, 2026, by which time memory third-quarter earnings, October export data and foreign fund flow data will all be available.
Comments