Asia shaken as $3 trillion wiped out overnight!

A sharp sell-off on US stock markets could trigger significant losses on South Korea’s stock exchange. The wiping out of more than $3 trillion in market value from US equities in a single day has heightened concerns ahead of the opening of Asian markets.

TodayPress TV reports that the Nasdaq 100 index fell 6.4%, with losses on the index alone reportedly exceeding $2 trillion. Nvidia shares dropped 9.3%, while US semiconductor stocks plunged 12.3%.

The impact of the sell-off on South Korea’s market is also drawing attention. One of the largest ETFs linked to the Korean market and traded in New York lost 12.6% of its value – more than twice the 5.3% decline recorded on the Seoul exchange. The KOSPI index has fallen 42.6% from its record high of 9,385 points, reached in June. SK Hynix shares have dropped 58% from their peak, while Samsung shares have lost 46%.

One of the main factors exacerbating the situation in South Korea is the large-scale use of borrowed money by retail investors to purchase stocks. Investors have relied on margin loans, leveraged ETFs tied to Samsung and SK Hynix shares, as well as personal savings and pension funds. According to Citi, during the crisis in July, 1.2 million leveraged accounts faced margin calls, while 360,000 accounts were forcibly liquidated.

The KOSPI closed its latest trading session at 5,383 points, its lowest closing level since April. As a result, much of the ground gained by the index over the previous seven months has been eroded.

South Korea’s stock exchange has a three-stage trading halt mechanism designed to prevent sharp market declines. If the index falls by 8%, trading is suspended for 20 minutes. The mechanism is triggered again if losses reach 15%, while a 20% decline results in trading being halted for the remainder of the day.

The main danger is that investors who bought shares using borrowed money may be forced to sell simultaneously. When share prices reach liquidation thresholds, brokers sell investors’ holdings to close their positions. This drives prices even lower, forcing more investors into compulsory sales. As a result, an initial decline can quickly turn into a chain reaction of selling.

Jed Ellerbroek, a portfolio manager at Argent Capital, has also described the current situation as a capitulation phase for data centre and semiconductor stocks.

The largest single-day decline in KOSPI history was 12.06%. If the index falls by 15%, the drop would surpass those recorded during the September 11 attacks, the dot-com crisis, the 2008 financial crisis and the COVID-19 pandemic. The next opening of the Seoul exchange is therefore being watched particularly closely.

Jala Rovshan