[Edaily Reporter kyoungeun kim ] Analysts suggest that the cause of yesterday’s sharp decline in the domestic stock market lies in supply and demand dynamics.
Byeon Jun-ho, an analyst at IBK Investment & Securities, said on the 24th, “Yesterday’s sharp market decline can be interpreted as a supply-and-demand issue,” adding, “While market supply and demand are expected to stabilize again after the short-term overheating subsides, the possibility remains that market uncertainty regarding supply and demand could persist and intensify if it becomes increasingly clear that the dollar is shifting to a significantly stronger trend.”
One of the factors identified as a direct trigger for yesterday’s sharp market decline was SK hynix’s rise to the top spot in KOSPI market capitalization. Researcher Byeon explained, “Empirically, since 2000, the company with the highest market capitalization ( SamsungElectronics(005930)) has never lost that position; therefore, SK hynix’s rise to the top was perceived by some as a sign of overheating or a signal that the market had reached a peak.”
However, he noted that statistically, this is not necessarily the case. Since 2000, there have been 15 instances of a company rising to second place in market capitalization and 43 instances of a company rising to third place; on average, stock prices rose 6 to 12 months after these events occurred. The probability of a stock price decline following such an increase was approximately 20% for stocks that rose to second place in market capitalization and about 60% for those that rose to third place; empirically, the risk of a decline was not as great as feared.

Researcher Byun noted, “Given that the current consensus suggests it will be difficult for SK hynix to outperform SamsungElectronics in terms of future earnings, the market capitalization reversal could be interpreted as a sign of stock price overheating.” However, he added, “Since this reversal is accompanied by factors that differ from the past—such as SK hynix’s technological capabilities and margin advantages—the reversal alone may not be sufficient to explain overheating or a market peak.” He added that this phenomenon could actually serve as a factor that enhances the attractiveness of SamsungElectronics’ stock.
Technical divergence was identified as a more tangible sign of overheating than the issue of market capitalization ranking. Analyst Byun pointed out, “The level of technical divergence, which showed unprecedented levels of technical overheating, can be viewed as a more tangible indicator of stock price overheating.”
As of the 22nd, SK hynix’s 20-day, 60-day, and 120-day deviations—with the stock price approaching 3 million won—stood at 129%, 181%, and 239%, respectively. In particular, the 120-day deviation was at an unusually high level. Since last year, when the market reached similar levels of overheating, SK hynix’s stock price has typically fallen by about 10–30% from its peak. However, some analysts believe that the 12.5% plunge the previous day has largely alleviated concerns about short-term overheating.
Researcher Byun predicted, “There is a possibility of immediate bargain-hunting following Micron’s earnings announcement, or if there is further correction this week, bargain-hunting reflecting second-quarter earnings expectations could begin next week.”
In terms of supply and demand, a resurgence of large-scale net selling by foreign investors stood out. Foreign investors recorded strong net selling of over 4 trillion won the previous day. Analyst Byun analyzed, “We believe that concerns over rising interest rates and a stronger U.S. dollar—driven by the global trend toward monetary tightening and, in particular, a hawkish Federal Reserve (Fed)—are influencing foreign investor sentiment.”
He emphasized, “If the U.S. Dollar Index rises one more time from its current level, or if the euro falls one more time from its current level, the market will definitively break out of the trading range it has been in for the past year; therefore, from this point forward, it is necessary to monitor foreign investor flows in tandem with the U.S. Dollar Index.”
Another factor weighing on supply and demand was cited as the possibility that the National Pension Service (NPS) may reduce its allocation to domestic stocks. Since the NPS’s asset allocation rebalancing grace period ends at the end of June, it is expected that starting in July, the NPS will be more likely to reduce its allocation to domestic stocks, which have risen disproportionately compared to other assets.
The National Pension Service’s target allocation for domestic stocks was significantly raised to 20.8% at a Fund Committee meeting last May. While the allocation range could be set as high as 28.8% assuming an 8 percentage point buffer for strategic and tactical allocation, the explanation is that the KOSPI’s surge of approximately 80% in the second quarter alone has increased the likelihood of selling pressure.
Analyst Byun noted, “The mere possibility of the National Pension Service reducing its domestic stock allocation may limit the likelihood of a sharp market decline,” but warned, “If selling pressure from domestic institutions, led by the National Pension Service, coincides with selling pressure from foreign investors, market volatility could increase significantly, potentially acting as a burden on supply and demand dynamics.”