South Korea’s KOSPI index crawled back this week as the political crisis in the country accelerated. The index, which tracks the biggest South Korean companies, rose to KRW 2,450, up by 3.80% from its lowest level this month.
South Korean political crisis
The KOSPI Composite index, which tracks the biggest companies in South Korea, crawled back after falling to a multi-month low of KRW 2,362 last week.
The initial plunge happened after the South Korean president announced a state of emergency and martial law. He then sent the country’s police officers to parliament to prevent legislatures from voting on the issue.
While the martial law lasted for a few hours, it had a big impact on the political and economy. For one, the president survived an impeachment vote and is being investigated by the police. Also, the defense minister has been arrested.
The KOSPI index and the South Korean won have bounced back because the state of emergency did not last long. It also rose as investors anticipated no major impact on South Korean companies from the crisis.
Still, the KOSPI index has continued to underperform other global peers. It has fallen by over 15% from its highest level this year, while other indices are within touching distance from their all-time high.
Samsung, LG, and Hyundai woes persist
The main catalyst for the weakness is Samsung, the biggest company in the country that accounts for over 20% of the GDP.
Samsung Electronics shares have retreated by almost 40% from the year-to-date high as it continues to lag other firms like AMD and NVIDIA in the semiconductor industry. Some analysts are comparing it to Intel, a company that has become a fallen angel in the crypto industry.
Not all Samsung companies have crashed. For example, Samsung Heavy Industries stock has jumped by 42% this year. Similarly, Samsung Fire Marine, Samsung Card, Samsung Life, and Samsung Biologics have all risen by over 20% this year.
Other parts of the company’s business like Samsung REIT, Engineering, SDI, Pharmaceuticals, and Publishing have all dropped by over 20% this year.
Companies in the LG Group have also not done well this year. LG Electronics stock has dropped by 14%, while Chemicals, Display, Innotek, and HelloVision have all dropped by over 20% this year.
The same trend has happened in Hyundai, another company that forms a backbone of the South Korean economy. Some firms in the group like Hyundai Elevator, Marine Engineering, HCN, Heavy and Industries, and Green Food have risen by double digits this year. Hyundai Electric & Energies shares have risen by over 347%.
Other names in the Hyundai family like Motor, Cement, Pharmaceuticals, Motor Securities, and Mar&Fi have risen by double digits.
KOSPI Index analysis
KOSPI Composite chart by TradingView
The daily chart shows that the KOSPI Composite index has been under pressure in the past few weeks. It peaked at KRW 2,892 in July and has now dropped to KRW 2,452.
The index formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. Also, the MACD indicator has remained below the zero line, while the Relative Strength Index (RSI) has moved below the neutral level.
The index has also formed an ascending broadening wedge, a popular bearish sign. Therefore, it will likely have a bearish breakout as sellers target the next key support level at KRW 2,300.
The alternative scenario is where the KOSPI index recovers, flips the moving averages, and rises to the upper side of the channel at KRW 2,892. That price action would imply a near 20% rally from the current level.
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