KOSPI Poised to Reverse Monday's Losses Amid Volatility

South Korea's benchmark KOSPI index closed lower again on Monday, settling at 6,257.45 points. This decline followed a record-setting surge on Friday, indicating continued volatility in the markets. However, analysts suggest that the KOSPI is likely to experience a rebound on Tuesday, driven by a positive global market outlook and falling crude oil prices.

The index plummeted by 5.12 percent on Monday, coming after a historic 17.91 percent jump on Friday. Friday's rally, which saw the KOSPI close at 6,595.45 points, marked the end of a three-day losing streak during which the index had cratered by more than 1,170 points, or 18.2 percent. This sharp downturn followed the KOSPI's all-time high of 9,385.59 points in June 2026. By late July, the index had lost approximately 30 percent from its June peak, creating a challenging period for investors. Foreign investors alone withdrew around $13 billion from Korean equities in July.

One of the primary drivers of this extreme market fluctuation has been the unwinding of an AI-driven boom in the semiconductor sector. Major players like Samsung Electronics (005930.KS) and SK Hynix (000660.KS) were at the forefront of both the declines and subsequent rebounds. Given that these two companies constitute a significant portion of KOSPI's market capitalization, developments in the chip industry have a profound impact on the index. Concerns over increasing competition from Chinese chipmakers also contributed to the selling pressure.

Another significant factor exacerbating the volatility in the Korean market was the high exposure of retail investors to leveraged single-stock exchange-traded funds (ETFs). This led to a cascade of margin calls and forced liquidations, deepening the market's downturn. South Korean Finance Minister Koo Yun-cheol publicly apologized for the impact these leveraged products had on everyday investors and announced plans to review new regulations for such instruments.

In a broader economic and political context, global geopolitical developments also influenced market sentiment. Tensions between the United States and Iran, and their subsequent impact on oil prices, created uncertainty in Asian markets. However, comments from U.S. President Donald Trump, signaling a halt to a planned strike on Iran and the potential for negotiations, led to a drop in crude oil prices, offering some support to market sentiment.

Analysts anticipate that the KOSPI could sustain its recovery trend in the near term. Morgan Stanley (MS) upgraded South Korean equities to overweight, suggesting that the recent sell-off was largely technical and projecting a 36 percent upside for the KOSPI. JPMorgan (JPM) strategists also noted that the Korean market had entered an attractive buying range, with the deleveraging process largely complete. Despite these positive outlooks, individual investors remain cautious due to the recent extreme volatility, with some reportedly opting to exit the Korean market.