KOSPI Bear Market Depth: Still Up 60% Year-to-Date as Government Raises GDP Growth Forecast to 3%
Claire Weston
KOSPI has fallen 25% from its all-time high, confirming a bear market — yet it is still up roughly 60% this year; the Korean government raised its 2026 GDP growth forecast to 3% on the same day, betting AI-driven chip demand can absorb external shocks.
Down 25% — so why is it still called "the world's strongest"?
KOSPI fell from its late-June record close of 9,114.55 to below 7,000 intraday on July 14 — a drop of roughly 25%, formally entering bear-market territory.
But measured from the start of the year, the index is still up about 60%, far outpacing the MSCI World's roughly 10% gain over the same period.
This means → this is not a "crash to zero" story. It is a violent pullback after an extreme run-up — even after losing a quarter of its value, KOSPI sits far above where it began the year.
How can one stock drag down an entire index?
Samsung Electronics and SK Hynix together account for just over 50% of KOSPI's weighting — half the index rides on two companies.
SK Hynix plunged 14% in Seoul on July 14; a 2× leveraged ETF tracking the stock fell more than 30% in Hong Kong, and forced liquidations amplified the sell-off, dragging KOSPI down roughly 8% on the day.
In plain terms = Nvidia's weight in the S&P 500 is about 7%. Samsung plus Hynix in KOSPI is above 50%. When single-stock leveraged products blow up here, the index impact dwarfs anything seen in other markets.
The KOSPI Volatility Index stood at 82.07 on July 14, having touched a record 97.99 on June 29; it was just 28.85 at the end of 2025.
Foreign investors are selling — who is buying?
Foreign investors have net-sold nearly $110 billion from Korean equities this year, a record, according to Reuters.
This means → Korea's soaring market cap pushed its share in global portfolios past allocation ceilings, triggering passive rebalancing — not a bearish call, but a mechanical "it got too big, we have to trim."
Korean retail investors filled the gap: net purchases of ₩13.2 trillion this month and ₩42.4 trillion in June; margin balances stood at ₩28 trillion as of July 14, just below the record ₩29.8 trillion hit on June 24.
What is the real cost for retail traders?
Lee Seung-ho, a 24-year-old university student, told Reuters he used margin loans to turn ₩10–20 million into ₩300 million during the bull run — then lost it all.
He said: "Just as it exploded upward, it exploded downward."
This reflects a core dynamic: leverage amplifies gains on the way up and losses on the way down. With retail margin balances near all-time highs, stories like his are unlikely to be isolated.
Why is the government raising its growth forecast now?
Seoul lifted its 2026 GDP growth forecast from 2% to 3%, above the IMF's 2.6% and the Bank of Korea's 2.6%.
The core thesis: AI-driven semiconductor demand remains strong enough to offset drag from the Middle East conflict; the current-account surplus is expected to hit a record $290 billion this year.
The government also projects the fastest nominal growth in three decades, per-capita GNI approaching $40,000, and a government-debt-to-GDP ratio falling from a previously forecast 50.6% to 47%.
Can the optimism deliver? What variables remain unresolved?
The government itself warns that energy and food prices remain key inflation uncertainties; it forecasts CPI at 2.6% this year, above the Bank of Korea's 2% target.
On the currency front, Seoul pledged to widen offshore use of the won, extend bank FX funding support, and issue more sovereign foreign-currency bonds.
Francis Tan, chief Asia strategist at Indosuez Wealth Management, called the sell-off "a wake-up call" — for the greedy and the fearful alike. Overweight investors should reassess; sidelined ones may have an entry point.
In plain terms = the government's macro picture is rosy, but whether the market's leveraged structure can unwind in an orderly way is the real test for Korean assets in the next phase.
Content is for reference only, not financial advice.