South Korea’s stock market was dealt a further blow following a conviction of Samsung group heir apparent Lee Jae-yong on Monday, with large-cap stocks posting bigger losses.

This comes as a recent rally, largely driven by massive retail investor participation since late 2020, has been followed by a stock market correction in the last two trading days.

The Korea Exchange’s main board Kospi closed at 3,013.93 points, down 2.3 percent from Friday, despite retail investors’ combined net buying of over 510 billion won ($462 million) worth of stocks on the bourse. It was the largest daily drop of 2021.

Hitting an all-time high on Jan. 8, Kospi’s bull run has seemingly reached a stalemate since Friday, when Kospi shed 2 percent.

Affiliates of Samsung conglomerate were mostly lower, as Samsung Electronics Vice Chairman Lee was sentenced to a jail term of two and a half years in the de facto final court ruling on bribery charges involving the impeached former president Park Geun-hye Monday afternoon.

Lee is also awaiting a court ruling on his alleged involvement in the controversial merger of Samsung C&T and Cheil Industries for possible violations of capital market rules, a move that allowed Lee to tighten his control over the tech conglomerate.

As a result, handset and semiconductor maker Samsung Electronics was 3.4 percent lower, battery maker Samsung SDI was down 4.2 percent, Samsung Life Insurance tanked 5 percent and Samsung C&T, a de facto holding company, dropped 6.8 percent.

Other large-cap Kospi-listed firms such as internet giants Naver and Kakao, biosimilar maker Celltrion, chemical firm SK Innovation and steelmaker Posco took losses. They were among 715 losers out of 917 Kospi constituents.

The KRX’s development board Kosdaq also slid 2.1 percent Monday to close at 944.67 points.

“Following Lee’s jail term, Samsung’s talks for inheritance tax payment and change in governance structure through carve-outs, mergers and divestments are unlikely to go forward for the time being,” Jung Dong-ik, an analyst at KB Securities, wrote in a note.

Aside from the shock that Monday’s court ruling has brought about, analysts said the stock market correction has been deemed inevitable, as the economic growth prospects driver appears to be losing steam while the stock market has become overheated.

“The fading hopes for an economic rebound from COVID-19 has led to a higher volatility in the global financial market,” Lee Kyoung-min, an analyst at Daishin Securities, wrote Monday. “Kospi’s short-term volatility is inevitable as the valuation pressure has gone to the extreme.”

Retail investor participation has stood out in Korean bourses. Last week, individuals net bought nearly 10 trillion won worth of Kospi-listed shares, while their total cash ammunition rose by 2 trillion won over the previous week, according to data from the Korea Financial Investment Association.

Samsung Electronics emerged as the top choice for small investors. According to KRX, retail investors net bought 5.9 trillion won worth of Samsung Electronics’ stocks, amid a total retail net purchase of Kospi-listed stocks worth 11.5 trillion won.

By Son Ji-hyoung (consnow@heraldcorp.com)