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Kospi nose-dives below 2,500 on short selling resumption, trade war worries

Published: 31 Mar. 2025, 18:33 Updated: 31 Mar. 2025, 18:38

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 2,481.12 points on March 31, down 76.86 points, or 3 percent, from the previous trading session. [NEWS1]

Korea’s benchmark Kospi index tumbled for a fourth consecutive session on Monday, closing below the 2,500 threshold, with the resumption of short selling and escalating concerns over U.S. trade policies and stagflation weighing on investor sentiment.

The Kospi finished at 2,481.12, marking a sharp 3 percent decline from the previous session, according to the Korea Exchange. Foreign investors led the sell-off, unloading a net 1.58 trillion won ($1.17 billion) worth of shares. The index hit its lowest level in nearly two months since closing at 2,453.95 on Feb. 3.

Market heavyweight Samsung Electronics slid 3.99 percent to 57,800 won, while semiconductor giant SK hynix shed 4.32 percent. Sectors perceived as vulnerable to short selling, particularly secondary battery makers, suffered steep losses. LG Energy Solution dropped 6.04 percent, Posco Future M fell 7 percent and L&F plummeted 7.88 percent.

The tech-heavy Kosdaq also saw a significant decline, tumbling 3.01 percent to close at 672.85.

Investor caution was heightened ahead of U.S. President Donald Trump’s anticipated "Liberation Day" announcement on Wednesday, during which he is expected to unveil reciprocal tariffs targeting countries with large trade surpluses, including members of the so-called Dirty 15.

Further fueling market jitters were signs of stagflation in the U.S. economy. The U.S. Commerce Department reported on Friday that the personal consumption expenditures price index — a key inflation gauge — rose 2.8 percent year-over-year in February, slightly exceeding market expectations of 2.7 percent. Meanwhile, nominal personal spending increased by just 0.4 percent from the previous month, falling short of the projected 0.5 percent growth. The data suggests a troubling mix of rising inflation and weakening consumer spending.

Reflecting similar concerns, Wall Street ended last week on a sour note, with the S&P 500 declining 1.97 percent and the Nasdaq Composite losing 2.7 percent on Friday.

“Trump’s tariff announcement on April 2 could exacerbate inflation concerns,” said Cho Byung-hyun, an analyst at Daol Investment & Securities. “If March consumption data also disappoints, fears of a U.S. economic contraction may intensify.”

The resumption of short selling after a 17-month suspension also contributed to the Korean market’s downward momentum.

The investment strategy involves borrowing shares expected to decline in price, selling them, and later repurchasing them at a lower cost, pocketing the difference after returning them to the original owner. While short selling may lead to short-term volatility, some analysts view it as a positive step for long-term market transparency and efficiency.

“Certain sectors may face short-term pressure, but the overall impact on the market will likely be limited,” said Byun Joon-ho, an analyst at IBK Securities.

“Increased foreign participation following the resumption of short selling could improve market liquidity,” Byun added.

The Financial Supervisory Service and the Korea Exchange activated the new Naked Short Selling Detection System, or NSDS, on Monday. The system monitors short selling by institutional investors and automatically flags illegal transactions.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY KIM DO-NYUN [[email protected]]