South Korean stocks surged by a record 17.91 percent on Friday, with the Kospi index jumping 1,001.89 points to close at 6,595.45. This marked the largest single-day gain in the index's history, surpassing the previous record of 11.95 percent set in October 2008. The dramatic rise was driven primarily by a rebound in semiconductor stocks and substantial foreign investment inflows. Chipmakers such as Samsung Electronics and SK hynix saw their shares climb significantly, with Samsung Electronics finishing 26.81 percent higher and SK hynix hitting its daily upper limit with a 29.95 percent jump. The rally was supported by improved sentiment following strong earnings from U.S. tech firms like Microsoft and Amazon, which alleviated fears about slowing AI investment and the semiconductor cycle. The Kospi's ascent began slowly, opening just 1.15 percent higher at 5,657.79 before rapidly climbing by double digits. By midday, the index reached an intraday high of 6,630.77, up 18.5 percent. A buy-side sidecar mechanism was triggered at 9:06 a.m., temporarily halting program purchase orders for five minutes. Similar curbs were activated on the secondary Kosdaq market, which closed 11.63 percent higher at 719.76, marking its second-largest daily percentage gain. The rebound followed a period of intense volatility, with the Kospi having dropped nearly 13 percent on Wednesday and 11 percent on Tuesday, hitting multi-month lows. Foreign investors played a crucial role in the rally, purchasing a net 7.25 trillion won ($5.06 billion) on the Kospi, extending their buying streak to a second day after four consecutive sessions of net selling. Institutions initially started as net sellers but switched to net buyers by midday, ending the session with net purchases of 1.15 trillion won. In contrast, retail investors took profits, selling a net 8.26 trillion won. The surge in semiconductor stocks was particularly notable, with Samsung Electronics, SK hynix, and SK Square all reaching their daily upper limits. Other major stocks such as Samsung C&T, Samsung Life Insurance, and Hyundai Motor also saw significant gains. The won strengthened against the dollar, closing the daytime session 13.4 won stronger at 1,424 per dollar. This recovery came after the currency had weakened to 1,436.9 intraday earlier in the week. The improvement in the won's value reflected the broader confidence in the market and the expectation of a more stable economic environment. The recent volatility in the Kospi has sparked discussions about the need for regulatory reforms. Industry officials have called for tighter scrutiny of overly optimistic brokerage research and stricter margin-lending rules. They argue that inflated expectations and heavily leveraged trading have exacerbated retail investors' losses during sharp market swings. For instance, Samsung Electronics reported a second-quarter operating profit of 89.5 trillion won, slightly exceeding analysts' forecasts but falling short of some brokerages' projections of up to 100 trillion won. This discrepancy contributed to a temporary dip in the stock price. The impact of leveraged ETFs has also come under scrutiny. Single-stock leveraged exchange-traded funds, designed to provide twice the daily return of individual stocks, were launched at the height of the chip rally. These products have been criticized for amplifying market volatility, especially as the AI-driven boom began to wane. The rapid expansion of these funds, with daily trading values hovering around 10 trillion won, highlighted the speculative nature of retail investing in the sector. Market experts suggest that the simultaneous launch of 16 such funds at the peak of the rally worsened the situation by increasing the sensitivity of the market to fluctuations in key stocks. As the Kospi continues to fluctuate, regulators and market participants are closely monitoring the situation. The recent record gain on Friday provides a glimpse of potential recovery, but the underlying issues related to market structure and investor behavior remain unresolved. The path forward will likely involve a combination of regulatory adjustments, improved risk management practices, and a more balanced approach to market forecasting and investment strategies.
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