Sell-off in some shares triggered Black Monday fears among investors

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Shares of Harim Holdings Co. and seven other companies fell by their daily limit Monday after an unusually high volume of sell orders were made through a foreign brokerage house, triggering a panic among individual investors.

Fear of a “Black Monday” among investors and the unexpected volume of sell orders dampened investor sentiment, leading to a 1.56 percent drop in the KOSDAQ to the 850 range.

Shares of five companies traded on the KOSPI -- Daesung Holdings Co., Daol Investment & Securities Co., Samchully Co., Sebang Co., and Seoul City Gas Co. - and three on the KOSDAQ -- Daou Data Corp., Sun Kwang Co. and Harim Holdings Co. - fell by their daily 30 percent limit. CJ Corp. plunged 28.1 percent at the open, but ended the day down 12 percent.

The sudden moves shocked investors particularly because these companies had surged to a record this year. Though the industries or categories of the companies varied, there was one common fact that much of the sell volume Monday morning was from SG Securities Korea Co. Institutional or foreign investors tend to sell stocks on an installment basis, having a smaller effect on market prices. Large volumes of sell orders of multiple companies, however, as seen on Monday, is very rare, market watchers say.

Due to the rarity of such a move, industry insiders speculate that the sell orders could have come from contract for difference (CFD) accounts. CFD accounts are for a type of derivative that allows traders to invest using leverage with a certain amount of deposit.

“It’s possible that there was a failure to extend the CFD accounts for some reason, but it is very rare to see such a large selling volume coming out at once,” said an industry insider. Market watchers are raising concerns that plunges in individual stock prices could trigger further sale volumes among margin traders.