Kospi down 25% from this year's peak as US, Japan and Taiwan markets climb

The Kospi has struggled to establish a firm footing above 7,000, lagging well behind major markets such as those in the United States and Japan. The benchmark index now sits more than 25 percent below the all-time high it set in June.

According to Korea Exchange, the Kospi closed at 6,803.90 on Wednesday, down 1.98 percent from the previous session.

That marks a 25.3 percent decline from the record closing high of 9,114.55 reached on June 22.

After hitting that peak, the Kospi tumbled to the 5,000 range in late July before recovering above 6,000. Since then, however, it has shown no clear upward momentum, hovering near the 7,000 level.

A challenging global environment has weighed on sentiment, with the US 10-year government bond yield breaking above 5 percent and growing debate over whether the pace of AI development may need to slow.

Even so, major markets in the US and Japan have continued to perform well, prompting analysts to note that the Kospi's resilience has been particularly weak by comparison.

From June 22 — when the Kospi set its all-time high — through Tuesday, the NASDAQ Composite rose 5.48 percent.

On Tuesday (local time), the NASDAQ closed at 27,599.79, up 122.48 points, or 0.45 percent, from the previous session, hitting a record high.

Japan's Nikkei 225 fell 2.31 percent over the same period but closed at 70,683.98 on Tuesday, reclaiming the 70,000 level for the first time in roughly three months and signaling a renewed upward trend.

Taiwan's Taiex rose 4.36 percent over the same period and closed at 49,822.55 on Tuesday, setting a new all-time high.

Analysts point to a liquidity squeeze as the main culprit behind the Kospi's recent weakness. "Liquidity in the Korean stock market has dried up compared to the first half of the year," said Kim Dae-jun, a researcher at Korea Investment & Securities. "Under these conditions, it will be difficult to expect a sharp recovery in large-cap stocks."

Data from Yonhap Infomax show that the Kospi's average daily trading value fell 57 percent, from 50.35 trillion won ($37.5 billion) in June to 21.36 trillion won last month.

Investor deposit balances also reflect the trend, standing at 100.84 trillion won as of Friday — down from 121.63 trillion won at the end of June.

Foreign investor flows have been another drag. Foreigners posted net selling on the Kospi for five consecutive months from May through last month, a trend analysts attribute to profit-taking pressure that built up as the index surged in the first half of the year.

"It appears that Korea-specific factors are at play — including aftershocks from supply-demand distortions caused by single-stock leverage products and profit-taking by foreign investors," said Han Ji-young, a researcher at Kiwoom Securities.

Some analysts, however, argue that the risk of further foreign selling is limited, given that a substantial amount of profit-taking has already occurred.

Against this backdrop, attention is turning to Samsung Electronics' preliminary third-quarter earnings, due Thursday, and whether the results could provide fresh momentum for the index.

"Concerns about Samsung Electronics' earnings have already been priced in, and with expectations sufficiently lowered, the risk of an earnings shock is small," said Lee Kyung-min, a researcher at Daishin Securities. "The share price is likely to be more sensitive to an upside surprise than to a disappointing result."

Lee added that strong Samsung Electronics earnings "would be the most powerful catalyst to fill the void left by the absence of buybacks, and would likely make a visible improvement in foreign investor flows."

Based on the average consensus of brokerage estimates compiled by FnGuide over the past three months, Samsung Electronics is forecast to post sales of 202.39 trillion won and operating profit of 108.68 trillion won in the third quarter of this year. The projected operating profit would represent a 793.3 percent increase from the same period last year.

Whether an improvement in the global investment environment can help lift the index is also being watched. "The probability of the Federal Reserve holding interest rates steady has risen, and the Bank of Korea also has limited grounds to push through a third consecutive rate hike," Kim said. "This backdrop could act as a restraining factor that prevents market interest rates from rising further."