Last August, Korea’s stock markets, as well as those in the United States and Japan, plunged. The phenomenon is called “Black Monday,” in just one day, the stock market shows a sharp decline beyond the market’s control. In Korea, 2,335 trillion KRW in market capitalization evaporated through the KOSPI and KOSDAQ. As the deterioration became too severe, a circuit breaker was triggered to stop trading temporarily. This led to several investors facing a new situation, with some panicking and making momentary choices, while others peeked at new opportunities.
On Wall Street in New York in 1987, Black Monday saw a 22.6% drop in stock prices in one day. From an objective perspective, it is extremely unlikely that these off-the-shelf variables will occur according to the natural flow of the market. Traditionally used by investment experts, the standard normal distribution model is followed, and even if analyzed through this, the probability of the stock market falling by more than 20% is extreme. This implies that it is somewhat difficult for the market to eliminate the risk on its own.
Investment experts argue that the cause of Black Monday in August may have been the market’s excessive interest in the JPY, which had been in decline. In Japan, asset holders with a lot of cash tended to secure more cash by taking out loans when the JPY was low. Their purpose was to invest in U.S. bonds or high-interest markets, and later to have strong investment power with market margins when the JPY’s value rose. The word that expresses this behavior is “NK trade.” They had bought and held stocks in many countries but the government made a shocking announcement that they would raise interest rates in Japan. Asset holders then rushed to sell all their stocks and repay their loans for fear of losing interest on loans, which is said to have triggered the global stock market crash.
In our country, the stock market recovered in part the next day, and those who made new investments using Black Monday as an opportunity were able to earn profits. This emphasizes the importance of the habit of wisely distributing your assets and keeping cash when you need it. The market does not always show a natural trend. It is important to objectively grasp the flow of the situation and become a desirable investor according to your beliefs and subjectivity.
