The Kospi has been gripped by extreme volatility, swinging from a 6% surge one day to a 6% crash the next. Amid this turbulence, individual investors have deployed a “buy the fear” strategy, scooping up over 3 trillion won (approximately $2.0 billion) in Samsung Electronics (005930.KS) and SK Hynix (000660.KS). At the same time, the Bank of Korea’s benchmark rate hike is boosting expectations for higher savings and deposit rates, leading a growing number of investors to turn their backs on the stock market and look toward banks.

According to the Korea Exchange, on the 16th, when the Kospi plunged 6.37%, individual investors net purchased 1.33 trillion won (approximately $894.1 million) of Samsung Electronics and 1.98 trillion won (approximately $1.3 billion) of SK Hynix. They were the sole buyers as foreign and institutional investors offloaded shares simultaneously.

This pattern has been repeating for weeks. When SK Hynix plunged 25% over five trading days starting last month, individuals bought over 13 trillion won (approximately $8.7 billion) worth. When it subsequently surged 10%, they net sold 800 billion won (approximately $537.8 million) to realize profits. After a more than 15% crash on the 13th of this month, they net purchased 2.79 trillion won (approximately $1.9 billion). They then net sold 2.54 trillion won (approximately $1.7 billion) on a 3% rebound on the 14th and 1.24 trillion won (approximately $833.6 million) on an 8% surge on the 15th. When the stock plummeted 11% again on the 16th, they resumed buying in the trillions of won.

This ultra-short-term strategy of buying panic sells and selling into short-term rebounds is rooted in the extreme volatility. From the start of July through the 16th, buy-side and sell-side circuit breakers were triggered eight times in the Kospi market alone. This is an extraordinary level, considering they were triggered only five times annually from 2021 through last year. The Kospi index crashed to an intraday low of 6,783.43 on the “Black Monday” of the 13th, recovered the 7,200 level with a 6.24% surge on the 15th, but then shed over 6% again on the 16th to close at 6,820.60.

This volatility was triggered by concerns that the semiconductor cycle has peaked, centered on Samsung Electronics and SK Hynix, and worries about a slowdown in AI data center investment. In a report on the 15th, Morgan Stanley stated that “data center project cancellations and delays are increasing” and that “the AI investment cycle could slow down.” This was compounded by concerns over expanding memory chip supply from China, freezing investor sentiment.

As single-stock leveraged exchange-traded funds (ETFs) for Samsung Electronics and SK Hynix were identified as factors amplifying the volatility, South Korea’s Financial Services Commission announced regulatory measures on the 16th. Starting August 5th, the minimum cash deposit required for new or additional purchases of single-stock leveraged ETFs will be raised from the current 10 million won (approximately $6,700) to 30 million won (approximately $20,200). Previously, up to 70% of existing stock holdings could be counted toward the deposit, but going forward, only cash will be accepted.

Meanwhile, the exodus of investors exhausted by the market volatility is becoming visible. According to the Korea Financial Investment Association, investor deposits stood at 109.87 trillion won (approximately $73.9 billion) as of the 15th, a 19.7% decrease from 136.83 trillion won on May 23rd, when the rally in Samsung Electronics and SK Hynix lost steam. This level is comparable to early April of this year, when fear spread through the stock market due to the prolonged conflict in Iran.

Adding fuel to the shift, the Bank of Korea’s Monetary Policy Board unanimously voted on the 16th to raise the benchmark interest rate by 0.25 percentage points, from 2.50% to 2.75% per annum. This marks the Bank of Korea’s first tightening pivot in three and a half years, since January 2023, and it did not rule out further hikes within the year. Online communities are now flooded with posts like “I took a loss on stocks and signed up for a bank time deposit in the 3% range” and “I’m going to open a savings bank deposit in the 4% range.”

Woori Bank will raise interest rates on deposit products by 0.25 to 0.30 percentage points starting on the 20th. The rate for a basic time deposit (maturity of 1 year to less than 2 years) will rise from a maximum of 1.95% to 2.20% per annum, while its flagship “Woori Super Time Deposit” rate will increase from a maximum of 2.15% to 2.45%. The rate for a basic installment savings account (1 year to less than 2 years) will rise from 2.45% to 2.70% per annum, and the “Woori Super Main Transaction Installment Savings” (1-year maturity) will increase from a maximum of 3.55% to 3.85%.

However, the pace of deposit rate increases is not keeping up with lending rates. The highest rates for representative one-year time deposits at South Korea’s five largest banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are in the 2.55–3.30% range, a stark contrast to lending rates whose upper end is approaching 7.5% per annum. As of the 16th, mixed (fixed) mortgage rates at the five major banks ranged from 4.77% to 7.49% per annum, with the upper end surging 0.84 percentage points and the lower end 1.26 percentage points from the end of last year (3.93–6.23%). This is the first time fixed rates have neared 7.5% since April 2022.

The bar for getting a loan is also rising. As of the 15th, the household loan balance at the five major banks was 649.66 trillion won (approximately $436.8 billion), already exceeding the annual target increase of 4.34 trillion won by approximately 350 billion won (approximately $235.3 million). Three of the five banks have reached around 150% of their targets, and the remaining two are expected to exceed theirs soon due to a balloon effect. In response, banks are mobilizing all available tools to manage their loan totals, including suspending applications through loan solicitation channels and restricting mortgage insurance subscriptions. From the 1st to the 15th of this month, the average daily origination of new mortgage loans was 185.7 billion won (approximately $124.8 million), a 25% plunge from the previous month.

With the likelihood of additional hikes by the Bank of Korea’s Monetary Policy Board growing, the prevailing market forecast is that the benchmark rate will ultimately reach 3.00% within the year. Park Jun-woo, an analyst at Hana Securities, predicted hikes in August, November, and February of next year, stating, “If the strong semiconductor exports do not falter, the Bank of Korea’s tightening stance will continue.” Some corners of the market are even raising the possibility of three total hikes this year. In that scenario, there are observations that bank mortgage rates, currently in the mid-7% range, could break through the 8% level.

Financial experts advise a cautious approach to both deposits and loans during a rate-hiking cycle. “For customers whose deposits are about to mature, it may be advantageous to sign up after banks have reflected the benchmark rate hike,” said Jeong Seong-jin, a team leader at KB Kookmin Bank’s Gangnam Star PB Center. “If there is a possibility of further rate hikes, it is worth considering a strategy of using short- to medium-term products rather than long-term ones.” Regarding loans, he added, “It’s not necessarily wise to repay a loan unconditionally just because rates have risen. Since tightened lending regulations can make it difficult to re-borrow after repayment, you must also consider your future funding plans.”

The won-dollar exchange rate fell to 1,480.40 won (approximately $0.9953) on the 16th as foreign selling subsided, dropping into the 1,480 won range for the first time in two months since May 12th. However, it remains to be seen whether this stability will last, as upside risks persist, including a potential re-escalation of Middle East risks and the possibility of a U.S. Federal Reserve benchmark rate hike.