This blog post examines how the Dow, S&P 500, and Nasdaq are calculated, and why these indices are crucial for both global stock markets and the Korean market, focusing on their underlying trends.

Since you’re looking anyway, broaden your view to target the global market

When a stock index rises, it’s called an uptrend; when it falls, a downtrend; and when fluctuations are minimal or nonexistent, it’s described as flat. If you plan to seriously engage in stock investing, a much deeper understanding is necessary. However, if not, knowing just this much is sufficient to grasp the overall trends while watching the news.

“Western Retail Investors ‘Scream’ as US Stock Market Plummets… KOSPI Also Falls Further” (Money Today, May 12, 2022)

Let’s examine this headline together. It describes how the US stock market crash directly impacts ‘Western retail investors,’ and the ripple effects indirectly affect South Korea’s KOSPI. The U.S. stock market transcends being just one nation’s stock exchange; it holds symbolic significance representing the global financial markets. Corresponding to the term ‘Eastern retail investors’ used for individual investors in South Korean stocks, those investing in foreign, particularly U.S., stocks are called ‘Western retail investors’. Given the U.S. market crash, it’s only natural that Western retail investors holding positions there suffered direct losses. The part we should particularly note in this article is the sentence “The KOSPI will fall further.” It is crucial to understand the pathways through which fluctuations in the U.S. stock market affect the Korean market and how the two markets are interconnected.

The Gears of the International Stock Market Revolving Around the U.S.

It is already a well-known fact that the Korean economy and the global economy cannot be considered separately. This interconnectedness is particularly evident in the stock market. Examining domestic market conditions reveals frequent movements that cannot be explained by domestic factors alone. In such cases, looking abroad is the natural way to find answers.
The foreign stock market with the greatest impact on South Korea is undoubtedly the New York Stock Exchange. The significance of the stock market in the United States, the center of the global economy, goes without saying. When the New York Stock Exchange shakes, the Tokyo Stock Exchange shakes, and the Shanghai Stock Exchange is also affected. Conversely, the New York Stock Exchange can also be influenced by fluctuations in other countries. Recalling the Russia-Ukraine war that began in February 2022 makes this easy to understand. When an earthquake strikes the Korean stock market, or when signs of one appear, one must first determine whether the epicenter is domestic or foreign to respond appropriately. However, when global stock markets experience significant turbulence, minimizing losses often becomes a more realistic choice than aggressive action.
The stock market is where changes in the real economy are reflected first. It’s not uncommon for a company’s stock price to fall rather than rise after news of “strong earnings” is reported. This is because information is often ‘pre-reflected’ in the stock market before such news breaks. Stock prices begin moving the moment the possibility of strong performance is detected. Ultimately, “who detected that possibility the fastest and most accurately” determines investment success or failure. By the time results are officially confirmed, it’s often too late, and what follows is mostly just a correction. This is why stock prices react sensitively even to the slightest possibility.

Signs of change in the U.S. real economy → Changes in the U.S. stock market → Changes in the Korean stock market → Potential changes in the Korean real economy → If that potential becomes reality, it impacts Korean companies and households

Now, let’s turn our attention back to the international market. As repeatedly emphasized, the center of the global real economy remains the United States. When changes occur in the U.S. real economy, or when signals of impending change are detected, the U.S. stock market reacts first. And the movements in the U.S. stock market then flow into the South Korean stock market. While it takes some time, ultimately, the South Korean real economy is also affected. Whether directly connected to that change or not, everyone eventually finds themselves within the sphere of influence of that wave. Unless you’re someone who has been monitoring the flow through news in advance, you’ll suddenly find yourself tossed about by the wave that crashes in one day.
This is why it’s essential to monitor not just domestic news but also international news. To truly understand the economy, you must broaden your perspective.

Don’t just memorize the names of the world’s capitals; keep track of the world’s major stock indices too

Just as South Korea has the KOSPI, every country in the world has its own unique stock index. Anyone interested in the Japanese economy has likely heard the term ‘Nikkei Index’ at least once. This is Japan’s representative stock index published by the Nikkei newspaper. The Nikkei newspaper is often abbreviated as ‘Nikkei’ in Japanese.
When examining the Chinese stock market today, the ‘Shanghai Composite Index’ is the primary focus, while the ‘Shenzhen Component Index’ also serves as an important indicator. During periods when the Chinese market was less open than it is today, the flow of the Chinese stock market was often gauged through the Hong Kong market. The representative Hong Kong stock index primarily used at that time was the ‘Hang Seng Index’. The Hang Seng Index is calculated and published by Hang Seng Bank, a subsidiary of the Hong Kong and Shanghai Banking Corporation, one of Hong Kong’s largest banks.
Three major stock indices typically represent the U.S. market. Among them, the most traditional and significant is the Dow Jones Industrial Average (DJIA). Dow Jones & Company selects 30 blue-chip companies listed on the New York Stock Exchange as its sample for calculation. It is also referred to as the Dow Jones Index or the Dow Jones Industrial Average. The second is the S&P 500 Index, published by the international credit rating agency Standard & Poor’s. It is named as such because it is based on 500 stocks. Finally, the third is the NASDAQ Index. NASDAQ, which also served as a model for KOSDAQ, primarily includes internet and high-tech companies. Well-known companies like Google, Apple, and Amazon belong here. Unlike KOSDAQ’s relative importance domestically, NASDAQ exerts a massive influence not only on the U.S. economy but on the global economy as a whole.
Europe appears unified under the European Union, suggesting a single stock index, but this isn’t actually the case. Europe also has separate stock indices for each country. However, their relevance to the South Korean economy is relatively low, so they aren’t frequently mentioned in the media. That said, there’s no need to feel discouraged. Newspapers and news outlets generally only repeatedly feature indices from countries with close economic ties to South Korea. For Europe, whose influence is relatively smaller compared to the US, Japan, and China, it’s sufficient to lightly familiarize yourself with just a few. Representative indices include the UK’s ‘FTSE 100 Index’, Germany’s ‘DAX 30 Index’, and France’s ‘CAC 40 Index’.

If the composite stock index is the national weather, then sectors are the local weather

Once you have a general grasp of stock indices, it’s time to look at ‘sectors’. If the stock index is the national weather, sectors can be compared to local weather. For South Korea, think of it as the weather at the provincial level. Among sectors, those that particularly influence the Korean economy are often called ‘major sectors’. You don’t need to know every sector in minute detail, but it helps to have a broad picture in your mind.
South Korea is a typical export-driven nation. Therefore, sectors with a high export share naturally have a significant impact on the Korean economy. While more precise figures can be found in data from Statistics Korea or the Korea Customs Service, let’s consider a few examples at a common-sense level here.
The first that comes to mind is undoubtedly semiconductors. Next are petrochemical products, automobiles, shipbuilding, smartphones, displays, and steel. According to data released by the Korea Customs Service, the top 10 export items have accounted for approximately 60% of total export volume in recent years. These items, grouped together, form an ‘industry,’ and the individual companies within each industry are the stocks traded on the stock market.
Let’s examine the major industries in more detail. Representative companies exporting semiconductors include Samsung Electronics and SK Hynix. Companies exporting finished vehicles include Hyundai Motor and Kia, along with GM, Renault Korea, and SsangYong Motor. In the petrochemical industry, LG Chem, Lotte Chemical, and GS Caltex stand out. Have you never heard of any of the companies mentioned? Most are likely familiar. These companies frequently appear in economic news not simply because they are large corporations. At the heart of the South Korean economy lies exports, and companies in sectors playing a pivotal role in exports naturally become central to the news. Samsung Electronics frequently appears in economic news not because it is a chaebol, but because of its significant influence on the Korean economy.
Industries are also useful for gauging economic trends on a sector-by-sector basis. Consider this analogy with seasons. While winter is the same nationwide, the winter in Daegwallyeong is vastly different from that in Jeju Island. People prepare for winter according to the weather in their own region. The stock market is no different. Even when facing the same economic downturn, the perceived severity of the recession varies significantly by industry. Reflecting these characteristics, exchange-traded funds (ETFs) have recently become widely used. These are investment products targeting specific sectors or indices rather than individual stocks.
Sectors are also frequently mentioned in economic news. Articles explaining export performance or covering medium-to-long-term economic outlooks are structured around major sectors. Next most frequently featured are newly emerging sectors or those with high growth potential. Take the fine dust problem as an example. If the government announces plans to reduce diesel vehicles and expand hydrogen and electric vehicles to cut fine dust, which industries would appear in stock-related news? Companies producing hydrogen and electric vehicles, along with those manufacturing parts for these vehicles, naturally draw attention. Companies producing masks or air purifiers are also mentioned. Thus, companies grouped around a specific issue could be called the ‘fine dust-related industry’.
Industries affected by government policy also feature prominently in news coverage. If the government announces plans to intensively foster the medical sector in preparation for the Fourth Industrial Revolution, various medical-related industries appear in articles. Similarly, if the government steps in to stimulate the construction market, the construction industry and construction companies receive spotlight coverage as ‘beneficiary stocks’.

“Global War of Survival… Turbulent Semiconductors, Korea in Crisis” (Kookmin Ilbo, 2022.12.14.)

“Electric Vehicle Demand Slowing?… Secondary Battery Stocks Cooling Off” (Seoul Economic Daily, 2022.12.09.)

If you’ve decided to take an interest in the economy, you should at least understand how crucial ‘semiconductors’ are to South Korea’s economy. Even if you can’t explain it in numbers. When the semiconductor industry shakes, the South Korean economy shakes significantly too. The first article uses the phrase ‘Korea in crisis’ as this turbulence unfolds negatively. Particularly noteworthy is that the cause is described as a ‘global war of survival’. Semiconductors are considered a core industry for the global economy, both now and in the future. Fierce competition is unfolding between two major powers, the United States and China, over this industry. The U.S. seeks to exclude China, while China pushes for semiconductor self-reliance. Caught in the middle, Korea finds itself in a position where it is effectively being asked to choose sides. From Korea’s perspective, maintaining trade relations with both the U.S. and China is the most ideal scenario. Becoming overly close to one side while distancing oneself from the other is never desirable. In this context, the article elevates the semiconductor industry beyond a mere industrial issue to a matter of national security.
The second article concerns secondary batteries. Secondary batteries are rechargeable batteries that can be used multiple times, unlike disposable batteries. To understand the secondary battery industry, two key variables must be considered together. The first is the global trend toward ‘eco-friendliness’. Recently, various related terms have emerged. Representative examples include ‘renewable energy’, which can be sustainably utilized without damaging nature; ‘carbon neutrality’, which aims to minimize or eliminate carbon dioxide emissions; and ‘ESG’, meaning management that considers environmental and social responsibility. The second variable is the automotive industry’s shift toward replacing internal combustion engine vehicles with electric vehicles. The secondary battery market is inevitably closely linked to EV demand. Understanding this background naturally expands your thinking to questions like which companies produce EVs and why EV demand might decline. Reading economic articles and seeking answers to these chain-reaction questions cultivates the ability to interpret the world.

If an industry is like regional weather, a stock is like our neighborhood weather

If the overall stock market situation is like national weather, and the situation by industry is like regional weather at the city or county level, then the situation by stock corresponds to our neighborhood weather. A stock can be understood, in the simplest terms, as an ‘individual company’. Every stock listed on the stock market is assigned a unique ‘stock code’. Even within the same company, different stock types may receive distinct stock codes, meaning the number of listed companies doesn’t exactly match the number of stocks. As of late 2022, the number of tradable listed stocks was approximately 900 on KOSPI and around 1,500 on KOSDAQ.
The stock-related news we commonly encounter typically centers on large corporations. This is because large corporations exert significant influence on the Korean economy, drawing substantial public attention. Therefore, to obtain information about small and medium-sized enterprises or lesser-known stocks, one must utilize alternative channels such as stock-specific articles or stock-related communities rather than general economic news.

“Samsung Electronics ‘Facing Tougher Times Next Year’… Bets on Foundry and 3nm Amid Memory Slump” (Seoul Economic Daily, 2022.12.14.)

“Retail Investors Still Go for Samsung Electronics… Shareholders Increase by 1 Million This Year” (Chosun Ilbo, December 5, 2022)

“Top 10 Industrial News of 2022 – Lee Jae-yong Appointed Chairman… Hyundai Motor Group Enters ‘Big 3’ for First Time” (News1, December 14, 2022)

These article headlines feature companies and figures representing the South Korean economy. They mention semiconductors, the top export item; Samsung Electronics, the leader in that field; and Chairman Lee Jae-yong, the owner of the Samsung Group. Even just looking at these three articles, one can gauge the weight and influence large corporations hold in the South Korean economy.
Before delving deeper, let’s first carefully examine the meaning of the terms appearing in the article titles. Semiconductors are broadly divided into ‘memory semiconductors’ and ‘system semiconductors’, also known as non-memory semiconductors. DRAM and NAND flash are representative memory semiconductors and are Samsung Electronics’ flagship products. The semiconductor industry is also categorized into ‘foundries’ and ‘fabless companies’. A foundry refers to a business or company specializing in semiconductor manufacturing, also known as contract semiconductor production. Conversely, a company that designs semiconductors but does not produce them directly is called a fabless company. Taiwan’s TSMC is the world’s largest foundry company, surpassing Samsung Electronics in terms of sales scale. Finally, ‘nano’ refers to the unit nanometer, meaning one billionth of a meter. One nanometer is described as being about the thickness of a single strand of hair divided into roughly 20,000 parts. The smaller this number, the more precise and high-value-added the semiconductor is understood to be.
Now, let’s return to the articles. The first article reports that the semiconductor industry’s performance this year was sluggish and forecasts continued difficulties next year. It particularly emphasizes the poor performance of Samsung Electronics’ flagship memory semiconductor products. As a countermeasure, the articles suggest strengthening technological competitiveness, focusing on the foundry business and 3-nanometer technology.
The second article doesn’t contain many unfamiliar terms, but it’s important to pay attention to the meaning behind the words themselves. Stocks that attract widespread public interest, like a national singer or national MC, are sometimes called ‘national stocks’. Around 2021, a massive influx of individual investors into the stock market sparked the so-called ‘Dongyang Ant Movement,’ with Samsung Electronics at its center. The expression ‘○-million electronics’ frequently appearing in article headlines is a metaphor for Samsung Electronics’ stock price level, now understood by most people. As of late September 2022, the number of shareholders holding Samsung Electronics common stock reached approximately 6 million. Simply put, with South Korea’s population around 50 million, this means more than one in ten people is a Samsung Electronics shareholder. Considering that a drama rating just over 10% is called a huge hit, it’s understandable that the entire nation reacting sensitively to Samsung Electronics’ stock price is not at all unusual. Ultimately, the second article shows the stature Samsung Electronics holds in the South Korean stock market. This means that regardless of Samsung Electronics’ performance, it has already established itself as a representative national stock. The expression ‘Samsung Electronics, no matter what’ directly reflects the psychology of individual investors who perceive it as relatively safer than other stocks.
The third article features the name ‘Lee Jae-yong’. This signifies that after a period following the death of former Chairman Lee Kun-hee, Chairman Lee Jae-yong officially took office, marking the start of the full-fledged Lee Jae-yong era. What’s interesting is that the article titles don’t explicitly state which company’s chairman is being referred to, yet everyone knows who it is. This is similar to how one doesn’t need to add the country’s name when mentioning the president. Chairman Lee Jae-yong’s inauguration was considered such an important event that it was selected as one of the top 10 economic news stories of 2022 by one media outlet. The article even covered it alongside news of Hyundai Motor Group entering the top ranks of global automobile sales.
Now, let’s connect these three articles. The weight carried by the name Lee Jae-yong is far greater than one might think. This is because he is the owner of the Samsung Group, which exerts enormous influence over the South Korean economy. Samsung Electronics’ status has also transcended that of a mere conglomerate, reaching the level of a ‘national enterprise’ where countless citizens participate as shareholders. Samsung Electronics’ performance is now perceived not just as the achievement of a single company, but as an issue directly tied to the assets of a large portion of the populace. To assess Samsung Electronics’ future, one must examine the moves of its competitor TSMC and pay attention to the global semiconductor market, which is being restructured around the US and China. Starting from the single keyword “semiconductor,” the scope of understanding must be broadened to include foundries, system semiconductors, and nano-processes. It naturally raises questions like why the US president visited a Samsung Electronics factory during his visit to Korea, or how the 52-hour work week system affects Samsung Electronics’ competitiveness. All these elements are closely interconnected.
Most economic articles focus on large-cap stocks. Comparing stocks to local weather, it’s like primarily reporting on the weather in Gangnam, Myeongdong, or Hongdae – areas where many people gather. When starting stock investing, it’s reasonable to begin by examining these large-cap stocks. They frequently appear in articles, making information easily accessible, and this foundation allows for more objective decision-making. When reading stock-related articles, the breadth of interpretation varies depending on the reader’s background knowledge and their ability to connect and understand information from other articles. A broader interpretation increases the likelihood of making more rational judgments. Of course, excessive imagination or over-speculation can cloud judgment, so maintaining balance is always crucial.