On Sept. 12, the KOSPI and KOSDAQ indices are displayed on an electronic board in the dealing room of Hana Bank in Jung-gu, Seoul. The KOSPI closed at 6,579.04, up 233.51 points (3.68%), marking its third consecutive session of gains. Around 11:57 a.m., a buy-side sidecar was triggered, suspending program buy orders for five minutes. The KOSDAQ ended at 858.91, up 1.07 points (0.12%), also rising for a third straight session. Yonhap News
The wild swings that made South Korea’s stock market feel like a “vertigo market” earlier this year are subsiding, as the Kospi finds its footing. As overheated margin and leverage trading cools, intraday swings that topped 7% in a single day last month have more than halved, while a broadening of gains beyond semiconductor leaders is being read as a sign that the market’s underlying strength is firming. The index still trails its high, but corporate earnings forecasts remain solid, and foreign investors who had shunned Korean equities amid extreme volatility are showing signs of returning, supported by a steadier won, setting the stage for a rebound.
The Kospi closed at 6,579.04 on the 12th, up 3.68% from the previous session, according to the Korea Exchange. It was the third straight day of gains, and the index jumped as high as 6,668.43 intraday, triggering a buy-side sidecar for the first time since the 5th. Since the start of August, the Kospi has moved between 6,250 and 6,600 with reduced volatility, consolidating a base. The intraday swing — the gap between a session’s high and low — narrowed to 3.45% in August from an average of 7.10% last month, more than halving. That is also below this year’s overall average of 3.86%. The daily swing between the opening and closing prices likewise shrank to 2.60% from 4.89% over the same period, showing that a market rattled by panic selling and herd trading in last month’s sell-off has entered a calmer phase.
The easing of fear is also visible in the data. The Kospi 200 Volatility Index (VKOSPI), known as the “fear index,” closed at 56.49 on the 12th, dropping to the 50 range for the first time in about three months since May 4. That is 41.73% below the high of 96.94 recorded on June 29. The unwinding of leverage, cited as a cause of last month’s plunge, is also in its final stages. The assets under management (AUM) and trading value of single-stock leveraged exchange-traded funds (ETFs) have tumbled since regulations took effect on the 31st of last month, falling 69% and 97% respectively as of the 10th from their June 25 peak. Margin loan balances, which had swelled to 38.6329 trillion won on June 24, fell to 27.4038 trillion won on August 4 before standing at 30.0387 trillion won on the 11th. This is read as a signal that liquidations, including forced sales, have run their course and that normal buying capacity is flowing back in.
The concentration in a few stocks is also unwinding. This year through the 12th, the daily average share of advancing stocks on the Kospi was 45.2%. That means that even as the index trended higher, more than half of listed companies fell — a persistent concentration in leading stocks. The advancing-stock ratio, which hit a yearly low of 31.7% in May when the index broke through 8,000, reversed to an average of 61.7% in August. Even on “down days” when the index fell, the average advancing-stock ratio reached 53.3% in August, above this year’s overall down-day average of 30.9%. Analysts say that with more than half of stocks rising even on days the index declines, a rotation is underway across the broader market.
The much-feared debate over whether memory chips have peaked is also calming. As continued artificial intelligence (AI) capital spending by Big Tech is confirmed, analysts increasingly project that a memory supply shortage will persist into next year. Against this backdrop, major global investment banks such as Morgan Stanley — whose earlier calls had triggered a correction in share prices — have offered positive assessments of the semiconductor sector, drawing bottom-fishing buyers. On the day, Samsung Electronics (005930.KS) and SK hynix (000660.KS) rose 6.68% and 5.54% respectively, settling in the 250,000-won and 1.5-million-won ranges.
With worries over earnings and extreme volatility fading and the Kospi’s cheap valuations coming into focus, the key question is whether foreign investors return. Global investment banks including Citigroup said in recent reports that while the Kospi has passed its low, they remain negative on entering the Korean market because of continued high volatility. Conversely, that means the market would be attractive to foreign investors once volatility is resolved. The won-dollar exchange rate, which has eased to around 1,417 won, is another factor supporting a return of foreign flows. On the day, foreign investors bought a net 2.8357 trillion won, driving the index higher. It was net buying for a second straight day, following 54.1 billion won the previous day. Noh Dong-gil, a researcher at Shinhan Investment Corp., said, “The turn lower in the VKOSPI is the start of an improving environment,” adding, “Foreign inflows into cash equities will follow with a lag.”