Kospi hits two-year low; regulators mull short-selling ban

South Korea's stock market tumbled to its lowest level in more than two years on Wednesday, as fears of a slowing global economy and rising inflation prompted investors to flee to safe-haven assets. 

With the benchmark stock index losing nearly 30% this year, financial authorities are understood to consider banning short selling on all listed stocks. Currently, short selling is allowed for a limited number of large caps on both the Kospi and the junior Kosdaq market. 

The benchmark Kospi index briefly dropped more than 3% to 2,152.27, its lowest point since July 2020. It trimmed losses to end just 2.45% lower at 2,169.29. 

Samsung Electronics, the largest stock on the main bourse, declined 2.40% to finish at 52,900 won.

The won's weakness fueled foreign selling in the domestic stock market. On Wednesday, the local currency dropped as much as 1.4% to 1,442.2 per dollar, its weakest level since March 16, 2009. 

To calm investor jitters, Financial Services Commission Vice Chairman Kim So-young said at a meeting with other financial authorities that the regulator will mobilize a stock market stabilization fund to support the stock market.

The fund will be injected primarily into exchange-traded funds, rather than individual stocks, said Kang Shin-woo, a senior official overseeing the stabilization fund. The authorities are now discussing when and how to deploy the money.

As for a possible short-selling ban, no details were yet disclosed. Back in 2020, the government temporarily halted short selling between March and May.

LG INNOTEK IN THE SPOTLIGHT

LG Innotek Co. was battered by a media report that Apple Inc. is reducing the production of its latest iPhone 14 models due to weak demand.

Chinese media ITHome said that one of Apple's outsourced manufacturers Foxconn has been told to shut down at least five manufacturing lines that produce the iPhone 14 in China.

Shares in LG Innotek plunged 10.50% to end at 277,000 won, its lowest point since late November 2021.

It is the exclusive supplier of sensor-shift optical image stabilization (OIS) for iPhones. Sensor-shift OIS helps a smartphone's camera stabilize an image by rapidly adjusting its optical path to correct for a shaky hand or bumpy car.

Innotek has ramped up its shipments to Apple to as much as 75% of its total sales in 2021. That compares with 54% in 2017 and 68% in 2020.

“Hit by an economic downturn, South Korea’s listed companies will see their profits down at least five to 10% next year,” said Huh Jae-hwan, a Eugene Investment & Securities analyst.

“We’d better open the door to a possibility that KOSPI breaks the 2,000 mark.”

Now the average price-earnings ratio on the KOSPI-listed shares slid to 0.82 times, meaning they are traded at a 20% discount to their book value.

The multiple is similar to the 0.81 reached in October 2008 during the global financial crisis.

(Updated with regulatory official comments)

Write to Sung-Mi Shim at smshim@hankyung.com
Yeonhee Kim edited this article.