Tariff shock: Kospi falls below 2,400 as sidecar triggered on futures

Korea Herald

07-04-2025

Foreign investors remain cautious, but stimulus hopes and easing tariff risks may spark recovery later this year, analysts say
South Korean stocks slumped Monday as renewed US tariff threats rattled markets, triggering a rare trading halt to curb volatility.
The benchmark Kospi plunged as much as 5 percent at the open, sliding below 2,400 and briefly touching an intraday low of 2,327. The sharp drop prompted Korea Exchange to impose a sidecar on Kospi 200 futures at 9:12 a.m., halting program trading for five minutes after contracts tumbled 5.2 percent — the first sidecar activation in eight months.
By 1:30 p.m., the Kospi was hovering around 2,340, down 5.08 percent. Foreign investors led the selloff, offloading 1.5 trillion won ($1 billion) in shares, while institutions shed 154 billion won. Retail investors stepped in as buyers, picking up a net 1.52 trillion won.
Amid heightened volatility, the Korean won weakened sharply, sliding about 2 percent from Friday's close to 1,434 per dollar.
The market rout came amid mounting fears of a global trade war after the US last week unveiled a sweeping set of 'reciprocal tariffs,' including a 25 percent levy on South Korean imports. Global jitters intensified over the weekend, with China announcing retaliatory tariffs on US goods and US President Donald Trump doubling down on plans to press ahead with the measures.
Market turbulence is unlikely to ease soon, analysts said, with global recession risks and US tariff uncertainty set to keep volatility elevated.
'The market isn't operating on rational logic at this point, so typical valuation arguments may not carry much weight,' said Cho Jun-kee, analyst at SK Securities. 'Without a clean resolution in sight, fresh shocks could drive further declines — and even if a rebound comes, the upside will likely be limited.'
The hit is proving especially painful for Korea, whose export-driven economy has been struggling with weakening trade growth since last year. 'Korea's dependence on exports makes it particularly vulnerable, and steeper-than-expected tariffs will inevitably weigh on growth,' said Jeong Yong-taek, senior analyst at IBK Securities. He expects market weakness to persist at least through April.
Korean stocks followed steep losses on Wall Street last week, as investors braced for blows from the harder-than-expected US tariffs on the global economy. The S&P 500 slumped 10.6 percent over the past two sessions, while the Nasdaq fell 5.8 percent, leaving them 17 percent and 23 percent below their 2025 highs.
Still, analysts see limited room for further downside given already depressed valuations.
The Kospi's price-to-book ratio has fallen to 0.87 — a level rarely seen outside of major crises like the 2008 global financial crash or the 2022 pandemic selloff.
While the Kospi had been under pressure from worsening trade tensions and weak domestic demand since last year, sentiment took a decisive hit in December after former President Yoon Suk Yeol's failed attempt to impose martial law. The shock dragged the index below 2,400, leaving it stuck in the 2,400 to 2,700 range for months.
The Constitutional Court's ruling last Friday to formally remove Yoon offered a brief reprieve. The Kospi initially rallied above 2,500 after the verdict, but gains quickly evaporated as focus shifted back to tariff risks.
'The market saw a meaningful correction last year, and current valuations are quite attractive for bargain hunters,' said Park Sang-hyun, a researcher at iM Securities. 'That should help limit further downside.'
Yoon's ouster also clears the path for faster policy action after months of political paralysis, offering a boost to sentiment. An early presidential election has been tentatively set for June 3, with the cabinet slated to confirm the date on Tuesday. In the meantime, parties are expected to unveil stimulus-heavy pledges in the weeks ahead.
Reflecting the improving sentiment, NH Investment & Securities raised its Kospi target range from 2,380 to 2,850. 'The stock market will likely first price in relief seen in the currency market, followed by momentum from potential stimulus measures, such as a supplementary budget,' said Kim Byung-yeon, NH's chief strategist.
No rush back for foreigners — yet
Offshore investors — a key driver of Korea's markets — are unlikely to rush back in soon, with the won still weak and global volatility elevated. Foreigners have sold Korean equities for eight straight months, dumping 10.6 trillion won so far this year.
'Foreign inflows will likely stay subdued in the near term,' said Jeong. 'Rising global volatility is driving demand for safe-haven assets, making it harder for foreigners to commit to Korean stocks.'
The won has come under heavy pressure in recent months, trading above 1,400 per dollar — well above last year's average of around 1,360. Some even warn it could test the 1,500 level if external risks persist.
Yet, the resolution of key uncertainties may offer some room for the won's near-term stability, a potential catalyst for the stock market.
'The won has been an outlier in the broader dollar-weakening cycle globally, weighed down by trade risks, capital outflows and political uncertainty,' said Kim. 'But it could settle in the low-1,400 range later this year.'
Once trade tensions ease and the new administration rolls out its policy agenda, foreign inflows could pick up in the second half, analysts said.
'We think tariff-related uncertainty has largely peaked, with Trump having already rolled out most of his flagged policies,' said Park. 'For Korea, stronger policy support under the new administration could pave the way for improved foreign fund flows.'