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KOSPI falls below 3,200 points during intraday trading on August 1. / Source: Yonhap News

The KOSPI and KOSDAQ indices fell nearly 3% intraday on August 1 as foreign and institutional investors accelerated selling amid a strong dollar, recent Korea-U.S. tariff talks, and the government’s tax reform announcement, dampening investor sentiment.

As of 11:51 a.m., the KOSPI stood at 3,153.28, down 2.84% from the previous session, after opening at 3,210.32 and trending downward early in the session, according to the Korea Exchange.

Foreign and institutional investors drove the decline, with net sales of 433.8 billion won and 600 billion won, respectively. The won weakened against the dollar, prompting capital outflows from domestic equities. The won-dollar exchange rate rose 7.80 won from the previous day to 1,399.80.

Although the conclusion of tariff talks with the U.S. reduced uncertainty, analysts noted that market expectations for a 15% tariff rate had already been priced in, leading to profit-taking.

The government’s tax reform plan also weighed on the market. The reform includes lowering the major shareholder threshold from 5 billion won to 1 billion won per stock and imposing a top 35% rate on separated dividend income taxation. These measures curtailed earlier optimism tied to pro-market policy expectations, fueling risk aversion.

Market observers expressed concerns that shifting focus toward tax hikes before implementing equity market incentives—such as policies to boost dividends and encourage long-term investment—could undermine investor confidence. This contrasts with the government’s earlier push for corporate governance reforms aimed at improving trust in the stock market.