Here’s why the Kospi Index is in a freefall today (July 13)

The Kospi Index moved deeper into correction as the biggest South Korean stocks resumed their freefall. It plunged to 6,560, its lowest level since May 4, and 26% below its highest point this year. This sell-off will likely continue this week as the South Korean Central Bank hikes rates and geopolitical tensions rise.

Kospi Index plunges as SK Hynix falls

South Korea’s Kospi Composite Index continued its recent downfall as volatility among key companies continued. SK Hynix stock dived by over 12% on Monday, two days after it made its US debut, raising over $26 billion. The company plans to use these funds to expand its manufacturing plants in South Korea.

SK's stock is now falling due to a phenomenon known as "buy the rumor, sell the news." This occurs when investors buy an asset ahead of a major event or catalyst and then sell it once the event takes place. In this case, the stock rallied ahead of its U.S. debut but declined after the listing was completed.

Samsung Electronics, another top technology company, dropped by over 7.72% today as the volatility in the memory industry accelerates. SK Square, which owns a large stake in SK Hynix, plunged by 15% today. 

Samsung Electro-Mechanics dived by 17%, a week after the company formed a $310 million joint venture with Sumitomo, a top Japanese conglomerate. The new venture will produce glass cores, a key material for next-generation semiconductor substrates. 

South Korea Central Bank decision and US-Iran tensions

The Kospi Index is also plunging as investors focus on the rising tensions between the US and South Korea. The two sides continued their attacks during the weekend, with Iran closing the Strait of Hormuz.

Crude oil prices bounced back, with Brent hitting $79 and the West Texas Intermediate (WTI) hitting $74.30. South Korea is highly sensitive to the developments in the Middle East because of the volume of oil it imports from the region. 

The next key catalyst for the Kospi Index will be the South Korean Central Bank interest rate decision scheduled on Wednesday. Most economists expect the bank to hike interest rates by 0.25% in this meeting because of the rising inflation.

Higher energy prices and rising wages in the semiconductor industry are fueling South Korea's inflation. Faster wage growth typically leads to higher consumer prices as companies pass on increased labor costs to consumers.

The bank will also hike interest rates to boost the South Korean won, which dropped to a record low earlier this month before staging a comeback to the current 1,507. 

Kospi Composite Index technical analysis

Kospi chart | Source: TradingView

The daily chart shows that the Kospi Composite Index has nosedived in the past few days, moving from the year-to-date high of 9,387 to the current 6,900. It slipped below the crucial support level of 7,044, its lowest swing on May 20th today.

The index has also slumped below the 23.6% Fibonacci Retracement level and the 50-day Exponential Moving Average (EMA). The path of the least resistance for the index is lower, with the next key level to watch being at the 50% retracement point at 5,850.