Now Reading: South Korea stock turmoil eases after leveraged trades unwound
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South Korea stock turmoil eases after leveraged trades unwound
The worst of South Korea's stock market selloff may be over after forced liquidations and tighter rules on leveraged exchange-traded funds reduced excess. A volatility index on Korean shares fell to a…
The Story in Brief
The worst of South Korea's stock market selloff may be over after forced liquidations and tighter rules on leveraged exchange-traded funds reduced excess. A volatility index on Korean shares fell to a two-month low last week from a record 96.9 in June. The Kospi index dropped almost 40% from its June peak, triggering 20-minute trading halts four times last month. About 1 trillion won of retail margin loans were liquidated in June and another 993 billion won in July, data from Korea Financial Investment Association shows.
Despite the stabilisation, overseas money managers are not rushing back. Morgan Stanley estimates the deleveraging process is more than half over, but global funds still sold $6.2 billion in July and $4.3 billion in August after a record $30 billion in June. Some investors, like Goldman Sachs, see the Kospi gaining 90% from current levels, citing strong earnings. Others remain cautious, pointing to elevated volatility and the need for calmer trading days before committing new capital.
The Indian Opinion
For Indian retail investors watching foreign markets, the Korea story is a familiar one: a hot rally fuelled by margin debt, then a brutal flush when the music stopped. The usual narrative is that 'smart money' from abroad will buy the dip. But foreign funds are still selling, drip by drip, even with the Kospi at record-low valuations. The real test is not today's price but whether volatility stays low enough for a full month. If it does not, the 'value trap' label will stick. Will Korean regulators need to step in again?
Source: livemint.com
This story was synthesised by AI from the source linked above.
