Tech-Heavy Korean Stockmarket Rout Does Not Compute in U.S.
A video explainer about the extreme decline in the Asian market
The South Korean stock market meltdown has an impact on the U.S. market in terms of reaction but not substance. I discuss the recent volatility in the South Korean stock market, the Kospi, which dropped from 9,000 40 days ago to 5,660 points today. The tech-heavy weightings of both the Kospi and the U.S. market are dissimilar markets, owing to the U.S.’s liquidity and diverse sectors mix. Over 50% of the Kospi is dominated by tech giants Samsung Electronics and SK Hynix.
Noted by Finance Professor Feng Zhang of SMU Cox, the impact of leveraged single-stock ETFs and the influence of high housing prices in Seoul were contributing factors that also drove the volatility. Similarly, the U.S. market faces issues like cost of living, inflation, and potential energy disruptions from a Middle East war flaring up again.
South Korea is an advanced Asian economy, alongside Japan. The GDP of South Korea ($1.9 trillion) and Japan ($4.5 trillion) and the U.S. ($33 trillion), set the stage for a discussion on the Kospi.
South Korea Market Meltdown Explained and More
Some other highlights:
Complex ownership structures in South Korea lead to challenges in information dissemination, according to Zhang in a recent interview. He cites ‘work being done by South Korea to improve corporate governance and boost valuations, which will take time.’
The South Korean government’s newly-announced $950 billion AI initiatives will be spent over time.
Execution and delivery on promises from tech hyperscalers, despite the market’s reaction to announcements, are what matters. Investors should focus on the long-term plans and capex execution of companies, rather than short-term market fluctuations.
Bonus clip of SMU Cox Finance Professor Feng Zhang on Korean stock market, part of a longer video interview dated 7/27 on his research about global stock market returns.