A ‘promised rebound’ within 30 days… but what about this plunge, worse than 9/11?

South Korean stocks have generally bottomed out and rebounded after the market’s “air-raid siren”—the circuit breaker—was triggered, data show. A circuit breaker halts trading for 20 minutes if the index plunges by at least 8% from the previous session’s close and stays there for more than one minute.

According to the Korea Exchange (KRX) on the 4th, circuit breakers were triggered in both the KOSPI and KOSDAQ markets, for the first time in about 19 months since Aug. 5, 2024. This marks the seventh time a circuit breaker has been triggered on the KOSPI market. In the six previous instances, the KOSPI fell an average of 8.72% on the day. On the day, the KOSPI tumbled 12.06%, eclipsing the decline recorded during the 9/11 attacks (-12.02%).

The KOSPI has shown swift resilience in times of crisis. On average, it took 30 days to rebound after a circuit breaker was triggered. On Aug. 5, 2024, when circuit breakers were triggered amid fears of an unwind of the “yen carry trade”—borrowing in yen to invest in other currency assets—it took 11 days to regain the prior level. During the COVID-19 shock in March 2020, circuit breakers were triggered twice: the market rebounded the very next day after the first, and recovered within five days after the second. After Sept. 12, 2001 (immediately following the 9/11 attacks), it took 42 days to rebound. Following the trigger on Sept. 18, 2000, the longest downturn lasted 253 days, reflecting the fallout from the dot-com bubble.

Jung Sang-jin, chief investment officer (CIO) at Korea Investment Value Asset Management, said, “With short-term overheating from a sharp rally now unwound, the market could post an even stronger gain.”

Reporter Maeng Jin-gyu maeng@hankyung.com