South Korea's stock market is standing on the dangerous edge of a technical formation. After the KOSPI repeatedly fell below its 200-day moving average, it plunged more than 7% again on October 15, triggering multiple circuit breaker mechanisms, with foreign investors net selling for eight consecutive trading sessions totaling more than 16 trillion won. On the technical front, once a "death cross" takes shape, combined with rising expectations of Federal Reserve rate hikes and doubts about AI investment profitability, whether the KOSPI can recover its 200-day moving average within the next two weeks will become the critical dividing line for judging whether this decline is a short-term fluctuation or the start of a long-term bear market.
On October 15, the KOSPI closed at 5,554.22 points, plunging 454.59 points in a single day, a drop of 7.57%, and at one point fell to near the 5,400 level during intraday trading. The KOSPI and KOSDAQ markets triggered sell-side sidecars and Level 1 circuit breakers successively that day, marking the first time both markets triggered circuit breakers on the same day in about two and a half months. Foreign investors net sold 4.8196 trillion won (approximately US$3.6 billion) in the KOSPI on that single day, becoming the core driver of the crash.
The trigger for this crash was the US September CPI data exceeding expectations — rising 3.7% year-on-year, higher than August's 3.4%, sparking market concerns that the Federal Reserve would raise rates again at its October 27-28 meeting. At the same time, the corporate bond yield of AI infrastructure company Coreweave surged to 14.8%, and its stock price plunged 15.5% in a single day, sharply intensifying market doubts about the sustainability of AI investment. The Nasdaq index fell 1.88% that day, and Nvidia dropped more than 3%.
Technical Alarm: 200-Day Moving Average Breached, Historical Data Reveals a Two-Week Lifeline
The KOSPI falling below its 200-day moving average is not a rare event, but the depth and speed of this decline have put the market on high alert.
The 200-day moving average connects the average closing prices of the past 200 trading days (approximately 10 months) and is the core technical indicator for judging long-term trends — when stock prices are above the line, it indicates a long-term uptrend; when below, a long-term downtrend. On October 13, the KOSPI closed at 6,035.35 points, 5.5% below its 200-day moving average (6,385.43 points), the first time this year it fell below that line; on the 14th, it further closed at 6,008.81 points, with the gap from the 200-day moving average (6,395.03 points) widening to 6%. The crash on the 15th pushed the KOSPI to 5,554 points, further widening the deviation from the 200-day moving average.
According to a statistical analysis by the South Korean media outlet Chosun Ilbo of KOSPI closing data since 1995, the KOSPI has experienced 124 instances of falling below the 200-day moving average and then recovering it again. Of these, 71 were recovered within three trading days. If the time window is extended to 10 trading days, 91 were recovered, meaning about 70% of cases were resolved within two weeks.
However, once the time spent below the 200-day moving average lengthens, risks rise significantly: staying below for more than 5 trading days carries a 34% probability of evolving into a prolonged decline lasting more than three months; staying below for more than 10 trading days raises that probability to 43%; and staying below for more than 20 trading days raises it to as high as 64%.
It is worth noting that a sharp decline on the first day does not necessarily signal a long-term bear market. On October 13, the KOSPI's first-day deviation from its 200-day moving average exceeded 5.5%, the second time since 1995. The first occurrence was on August 5, 2024, when the deviation reached 7.1%, but the 200-day moving average was recovered within the following seven trading days. In contrast, the 16 long-term deviations lasting more than three months in history mostly began with only a small deviation of within 2% on the first day, followed by a slow decline — the 1997 Asian financial crisis and the 2008 global financial crisis both fell into this category.
Death Cross Approaching: May Take Shape After 16 Trading Days
In addition to losing the critical 200-day moving average, South Korea's stock market is now showing another warning signal on the technical front: a "death cross" is approaching! Although it has not yet appeared, the countdown has already begun.
A death cross refers to the 50-day moving average crossing below the 200-day moving average, meaning the average stock price of the past approximately two and a half months has fallen below the 10-month average. It is typically regarded as a confirmation signal that a short-term sharp decline has reversed the medium-term trend, rather than a new warning.
If the KOSPI continues to hover around the 6,000 level, the death cross will form in approximately 16 trading days, around early November.
Historical cases confirm the severity of this risk: on September 27, 2024, the KOSPI fell below its 200-day moving average on the same day the death cross appeared, and then continued declining for as long as 92 trading days.
Furthermore, the 200-day moving average itself remains in an upward channel — rising from 6,221.64 points on the 21st of last month to 6,395.03 points on the 14th, moving up by approximately 10 points per day. This means the target line the KOSPI needs to catch up to keeps rising. If the KOSPI remains near 6,000 points, by the end of the Federal Reserve meeting on October 28, the 200-day moving average will have risen to approximately 6,490 points, at which point the KOSPI would need to rise more than 8% from its October 14 closing price to recover it, with the difficulty of recovery continuously increasing over time.
Crash Scene: Foreign Investors Dump Heavily, Circuit Breakers Triggered Repeatedly, Semiconductor Sector Takes the Brunt
The market action on October 15 was nothing short of brutal.
The KOSPI opened 5.59% lower and subsequently extended losses to as much as 9%, touching a low near the 5,400 level during intraday trading. The KOSPI and KOSDAQ markets triggered sell-side sidecars and Level 1 circuit breakers successively that day, with each market suspending trading for 20 minutes, the first same-day trigger since July 29.
Foreign investors were the core sellers in this crash. Foreign investors net sold 4.8196 trillion won (US$3.6 billion) in the KOSPI on a single day, with cumulative net selling over the past eight trading days reaching 16.1 trillion won (US$12 billion). Individual and institutional investors net bought 2.145 trillion won (US$1.6 billion) and 2.0047 trillion won (US$1.5 billion) respectively, absorbing the foreign selling. It is worth noting that foreign investors had been net buying in the KOSPI 200 futures market for four consecutive trading days, forming a clear divergence from the massive selling in the spot market.
At the sector level, the electrical and electronics sector led the decline, falling 10.13%; machinery and manufacturing fell 8.44% and 8.61% respectively. Semiconductor stocks suffered particularly heavy losses: Samsung Electronics fell 9.48%, SK Hynix fell 11.06%, SK Square fell 10.21%, and Samsung Electro-Mechanics fell 15.36%. The power equipment sector also plummeted in tandem, with Hyosung Heavy Industries falling 14.71%, LS ELECTRIC falling 12.13%, and HD Hyundai Electric falling 10.31%. The KOSDAQ closed at 760.82 points, down 7.65%, with all top ten market-cap stocks closing lower.
Daishin Securities analyst Lee Kyung-min stated that this decline was the result of a combination of high interest rate pressure, doubts about AI investment sustainability, intensifying competition in the memory market, foreign selling pressure, and domestic supply-demand imbalance, and noted that the KOSPI's first support zone is expected to be between 5,262 and 5,593 points.
Macro Pressure: High Rates, AI Bubble Concerns, and Middle East Tensions Form a Triple Squeeze
It is worth noting that behind this decline, negative macro-level factors are overlapping and resonating.
The first is US interest rate pressure. The US Labor Department reported that September CPI rose 3.7% year-on-year and core CPI rose 2.6% year-on-year, both exceeding market expectations. The US 10-year Treasury yield surged to 5.32% during intraday trading before falling back to around 5.12%, but market concerns about a Federal Reserve rate hike at its October 27-28 meeting continued to intensify. Rising interest rates will directly increase financing costs for AI data center construction companies.
The second is doubts about AI investment profitability. Coreweave's corporate bond yield surged to 14.8%, revealing the vulnerability of AI infrastructure companies that rely heavily on external financing rather than their own cash flow to support large-scale capital expenditure (CAPEX). Anthropic's third-quarter revenue was US$16.8 billion, up 46% quarter-on-quarter. Although it recorded a profit and achieved positive free cash flow, it failed to dispel market concerns about slowing returns on AI investment. China's CXMT plans to commercialize next-generation DRAM, which has also intensified concerns about intensifying competition in the memory market.
The third is Middle East tensions and oil prices. Brent crude oil prices remain at a high level of approximately US$106 per barrel, constituting additional inflationary and market pressure.
Shinhan Investment Securities analyst Kang Jin-hyuk pointed out that foreign investors net sold spot stocks for eight consecutive trading days, panic selling occurred in large-cap semiconductor stocks such as Samsung Electronics and SK Hynix, and declines across the entire AI value chain continued to widen.
Earnings Season Arrives: A Two-Week Verification Window, Memory Stocks May Present a Medium-Term Buying Point
Just as the market is mired in dual pressure from technical and macro factors, South Korea's third-quarter earnings season is set to officially begin in the week of October 19, providing the market with a key verification window at the fundamental level.
According to the latest research report published by JPMorgan's Asia-Pacific equity research team on October 15, Samsung Electronics' preliminary results met expectations, LG Electronics fell short of expectations, and LG Energy Solution exceeded expectations. These three precursor signals have set the tone for this earnings season. JPMorgan analysts Jay Kwon and others believe that the technology and financial sectors are expected to be the main battlegrounds for this earnings season.
After visiting more than a hundred Asian investors in Singapore, Kuala Lumpur, and Hong Kong, Jay Kwon pointed out that there is a clear divergence between the top-down conclusion on AI spending sustainability and the bottom-up conclusion from tracking memory supply-demand fundamental data. However, from a medium-term perspective, the risk-reward has turned favorable, and he recommends that investors accumulate on dips during the recent pullback.
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