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KOSPI Composite Index chart pattern points to a 20% dip

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Updated on Nov 28, 2024
Reading time 4 minutes
  • The KOSPI index retreated after the latest Bank of Korea decision.
  • The bank slashed rates and its forward guidance for the economy.
  • It has formed a rising broadening wedge chart pattern on the weekly chart.

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The KOSPI index index remained under pressure on Thursday after the Bank of Korea delivered its second interest rate cut of the year. The index, which tracks the biggest companies in South Korea, retreated to KRW 2,505, down by 25% from its highest level in 2021.

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Bank of Korea rate cut

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South Korea’s central bank slashed rates by 0.25%, bringing the benchmark rate to 3.25% as it worked to stabilize the economy. 

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The cut came as recent economic data showed that the country’s Consumer Price Index (CPI) was falling. Data by South Korea’s statistics agency showed that the headline CPI retreated to 3.1% in October, lower than the median estimate of 1.4%. The CPI has dropped from the 2022 high of 6.3%.

There are signs that the economy is slowing, mostly because of the challenges that Samsung is facing. The Bank of Korea now expects that the economy will grow by 2.2% this year, down from 2.4% in the previous year. It also sees the economy growing by 1.9% in 2025, lower than the previous estimate of 2.1%.

The Bank of Korea is concerned about protectionism now that Donald Trump is about to become president. In statements this week, he warned that he would impose large tariffs on countries like China, Mexico, and Canada. 

While South Korea was not mentioned, analysts believe that it may become a victim of these tariffs as well. 

Samsung woes challenges

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The KOSPI Composite index has also retreated in the past few months because of the ongoing challenges at Samsung.

Just last month, Samsung Electronics apologized to shareholders after delivering a profit warning for the third quarter. This happened as its operating profit came in at 9.1 trillion won ($6.8 billion), lower than the 10.3 trillion that analysts were expecting. 

The company attributed this performance to a delay in shipping chips to a key customer. Still, there are signs that Samsung is struggling to compete with other large semiconductor companies like NVIDIA and AMD. It has struggled because of its late entry in the artiffial intelligence industry.

Samsung has even struggled to compete with SK Hynix, another top semiconductor company in South Korea. As a result, it is now cutting thousands of jobs to save cash.

Its challenges are notable for the KOSPI index and South Korea since it accounts for 22.4% of the country’s GDP. 

There were several notable movers in the KOSPI index. Shin Poong Pap, a company that sells paper, jumped by over 17.5% on Thursday. Korea Zinc rose by 12.7%, while Korea Ind and Doosan Fuel rose by over 7%. Hyundai Green Food stock jumped by 5%.

Companies in the Samsung group were mixed. For example, Samsung Heavy Industries stock retreated by 0.76%, while Samsung Electronics fell by 0.86%. Samsung Biologics was the best-performing company in the group as it jumped by 3.7%.

KOSPI index analysis

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KOSPI chart by TradingView

The weekly chart shows that the KOSPI Composite index may be at risk of a strong bearish breakout. It has formed a rising broadening wedge pattern, a popular bearish sign in the market. This pattern is made up of two ascending trendline that are widening. 

The index has also moved below the 50-week moving average and is between the 50% and 38.2% Fibonacci Retracement level. It has also formed what looks like a bearish flag pattern, while the Relative Strength Index (RSI) and the MACD indicators have pointed downwards. 

Therefore, the index will likely have a strong bearish breakout as sellers target the next key support level at KRW 2,000, which is about 20% below the current level. The alternative scenario is where it rises and retests the upper side of the wedge pattern.

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