Black Monday Strikes: Korean stock market plummets, triggering circuit breakers

The Korean stock market plummeted sharply, triggering circuit breakers and emergency measures on Aug. 8, and sending shockwaves through Asian markets amid fears of a potential U.S. recession and escalating Middle East tensions. /News1

On the Aug. 5, the Korean stock market experienced a significant downturn, triggering the first level of the circuit breaker (CB) on both the KOSPI and KOSDAQ, the two major Korean stock indices, temporarily halting trading.

A circuit breaker is a regulatory measure designed to temporarily halt trading on an exchange to curb panic-selling.

The Korea Exchange announced at 2:14 PM on Aug. 5 that the KOSPI index had dropped by 8.10% compared to the previous day, activating the first level of the circuit breaker and suspending market trading.

Earlier, the KOSDAQ index had also dropped by more than 8% for over a minute compared to the previous day’s closing index, prompting the first level of the circuit breaker.

This is the first time in 4 years and 5 months since the COVID-19 pandemic declaration in Mar. 2020 that the circuit breaker has been activated. It’s the sixth time in history for the KOSPI and the tenth for the KOSDAQ.

Currently, the KOSPI stands at 2,459.81, down 8.09% from the previous day, while the KOSDAQ has dropped 8.72% to 711.37.

An electronic board displaying the Tokyo stock market indices is seen on a street in Tokyo on Aug. 5, 2024. On this day, the Nikkei index fell by more than 7%. /AFP Yonhap News

Leading companies in the KOSPI market like Samsung Electronics and SK Hynix have also seen significant declines. Samsung Electronics fell by 8.54% to 72,800 won ($53.01), SK Hynix dropped by 8.14% to 159,100 won, and Hyundai Motor Company is trading at $165.67, down 6.76%.

This steep decline is attributed to concerns about a potential recession in the United States and the possibility of an escalating conflict in the Middle East, leading to a ‘panic sell-off,’ effectively creating a ‘Black Monday.’

A panic sell-off occurs when sudden negative news triggers widespread fear among investors, causing them to sell their stocks and bonds to avoid substantial losses. This selling frenzy often leads to a rapid market decline as more investors join in.

On the same day, stock markets across Asia, including Japan and Taiwan, also faced Black Monday due to panic selling. As of 1:10 PM, Japan’s Nikkei index had plunged by 7.40% to 33,253.72, leading the losses in Asian markets. The TOPIX index also fell by 7.91% to 2,336.86, erasing gains made over the past eight months in just three trading days.

This sharp decline has sparked discussions in financial circles about whether the Bank of Japan’s early interest rate hike was a mistake.