Over the weekend, fears of a U.S.-driven economic recession snowballed, hitting global stock markets on Aug. 5. South Korea, Japan, and Taiwan experienced record drops, marking the worst “Black Monday” in history.
South Korea’s benchmark KOSPI index plunged 234.64 points, or 8.77%, to close at 2441.55, marking its first daily drop exceeding 200 points. The KOSPI’s total market capitalization shrank by about 192 trillion won in a single day, falling below 2000 trillion won.
Among Asian markets, Japan suffered the steepest decline. The Nikkei average plummeted by 12.4%. The Nikkei’s drop of 4,451 yen surpassed the 3,836 yen decline on Oct. 20, 1987, following the U.S. Black Monday. Taiwan’s Taiex also fell sharply by 1,807 points, breaking the record set just one trading day prior on Aug. 2, which was 1,004 points.
The plunge in Asian markets stemmed from a confluence of signals indicating a U.S. recession: rising unemployment, a deteriorating manufacturing outlook, and concerns over an AI bubble. Fears that the U.S. downturn could impact Asia’s export-dependent economies froze the markets.
The Asian Black Monday triggered a global selloff. In the opening hours of the New York stock market, the tech-heavy Nasdaq index fell by over 3%, and AI chipmaker Nvidia dropped by more than 5%.
The driving force behind the Asian market slump was sheer panic among investors. The KOSPI started the day down 2.5% at 2611.30, but the decline deepened throughout the session, at one point plunging over 10%. Despite a five-minute trading halt at 11 a.m. when a sidecar was activated, selling pressure persisted.
At around 2:14 p.m., a circuit breaker was triggered as the KOSPI fell over 8%, suspending trading for 20 minutes for the first time since March 2020, during the early days of the coronavirus pandemic. However, upon resumption, the KOSPI nearly fell by 11%, briefly losing the 2400 level before recovering. The KOSDAQ also closed down by 88.05 points (11.3%) at 691.28.
Unlike previous instances where trading halts calmed the market, the decline worsened after trading resumed. Following a 3.65% drop in the KOSPI on Aug. 2, the index approached a 7% intraday decline. Market experts explain that program sell orders intensified the downturn. One expert noted, “Stop-loss orders triggered a cascade of selling, worsening the decline,” adding, “Panic selling led to more panic selling.”
