A Bloomberg column suggested that the Korean market was becoming uninvestable, but South Korea’s financial authorities pushed back. Following turmoil in single-stock leveraged ETFs, the KOSPI plunged and market volatility increased.
The Financial Services Commission pushed back against a Bloomberg Opinion column that described the Korean market as uninvestable, saying there was no basis for the claim. Nevertheless, the market’s excessive price swings are raising questions about how they are perceived by global investors and how they should be addressed.
The immediate trigger for the latest plunge is said to have been the concentration of funds in highly leveraged products linked to individual stocks. These products pushed share prices higher during the upswing, but when the market turned, mechanical selling cascaded through the market. Stocks including Samsung Electronics and SK hynix had a significant impact.
The KOSPI fell by approximately 40% at one point from its June high, showing volatility comparable to that seen during the 2015 plunge in Chinese stocks. Huge amounts of money also flowed out of the leveraged ETF market, highlighting the market’s vulnerability.
Some believe that a recovery in Samsung Electronics and SK hynix earnings, along with easing concerns over AI investment, will be a prerequisite for a market recovery. Others say it is essential to improve the market structure, including the design of the framework for leveraged products and the role of margin trading.