Now Reading: South Korea market turmoil eases after leveraged trades unwound
-
01
South Korea market turmoil eases after leveraged trades unwound
South Korea's stock market volatility has fallen to a two-month low from a record high in June, suggesting the worst of the selloff may be over. Forced liquidations and tighter rules on…
The Story in Brief
South Korea's stock market volatility has fallen to a two-month low from a record high in June, suggesting the worst of the selloff may be over. Forced liquidations and tighter rules on leveraged ETFs have flushed out many retail investors, with margin loan balances hitting their lowest this year. The Kospi Index saw a drawdown of almost 40% from its June peak. Global funds have sold over $100 billion of shares this year, leaving emerging-market funds underweight on the country.
Morgan Stanley estimates the deleveraging process is more than half over, but overseas money managers are not rushing back. Volatility remains elevated, and global funds sold another $4.3 billion in August after a record $30 billion in June. Some, like Goldman Sachs, are bullish, reiterating a 12-month Kospi target of 12,000, an upside of around 90%. Others are waiting for calmer trading days and evidence that price-discovery mechanisms are working normally.
The Indian Opinion
The narrative that South Korea's 'revenge trade' was a sure bet for retail investors has taken a beating. But the opposite extreme, that the market is permanently broken, is equally lazy. Leverage amplified the swings, and its unwinding was brutal. Yet Korean chip makers still have strong earnings outlooks, and valuations are at record lows. The real test now is not a single day's rally but whether foreign institutions can regain confidence in the market's stability as domestic retail exits.
Sources (2): livemint.com, ndtvprofit.com
This story was synthesised by AI from the 2 sources linked above.
Updated: this story now draws on 2 sources.
