Concerns over interest rate hikes from the U.S. and a sharp decline in global tech stocks have heightened volatility in South Korea's stock market. Individual investors, who had heavily invested in single-stock leveraged ETFs for Samsung Electronics and SK Hynix, now face significant valuation losses as leading stocks tumble. Amid growing warnings of overheating from foreign media, concerns about the concentration in the domestic stock market are also rising.
On June 8, the KOSPI opened at 8,048.09, down 112.50 points (1.38%) from the previous trading day, and the decline accelerated, triggering a circuit breaker at 9:03 a.m. The index fell as low as 7,442.73, prompting a sell-off sidecar, and ultimately closed at 7,484.41, down 676.18 points (8.29%). The KOSPI index, which had closed at 8,801.49 on June 2, dropped 15% in just three trading days.
The decline follows strong U.S. employment data in May, raising concerns about tightening by the Federal Reserve, coupled with news of capital increases being considered by hyperscalers, which has sparked debates over AI profitability. Major stocks like Samsung Electronics and SK Hynix were hit hard, with Samsung falling 10.18% to 295,500 won and SK Hynix dropping 7.68% to 1,911,000 won.
Single-stock leveraged ETFs, which attracted many individual investors, were particularly hard hit. The trading volume for 16 leveraged and inverse ETFs focused on Samsung and SK Hynix reached 8.2 trillion won on this day.
Since the listing of related products on May 27, 14 types of long-direction leveraged ETFs saw a cumulative trading volume of 58 trillion won and net purchases by individuals of 7.4 trillion won over seven trading days until June 5. During the same period, approximately 79% of the total net purchases of domestic equity ETFs (7.7 trillion won) were concentrated in semiconductor-related products, exacerbating market concentration.
As the underlying assets plummeted, leveraged ETFs also experienced significant declines. The KODEX Samsung Electronics single-stock leveraged ETF dropped 20.71%, while the TIGER Samsung Electronics single-stock leveraged ETF fell 20.69%. The SK Hynix leveraged ETF also saw declines of 15% to 17%. In contrast, inverse products recorded double-digit gains.
While the exact scale of losses for individual investors has not been quantified, industry experts believe that a significant number of investors have likely entered a valuation loss zone.
Historically, individual investors have shown a tendency to aggressively buy leveraged products during stock price declines. Park Yoo-an, a researcher at KB Securities, noted, "In the domestic leveraged ETF market, the correlation between individual supply and daily returns is low," adding that there is a characteristic of concentrated bargain hunting during downturns.
Opinions on the market outlook are divided. Bloomberg reported that global investors are shifting from optimism to caution regarding the Korean stock market. Some foreign investment institutions are reducing their exposure to AI-related stocks or increasing their hedging. European financial firm Optiver warned that the proliferation of single-stock leveraged products could increase market volatility.
Conversely, domestic securities firms view the recent drop as a process of overheating correction rather than a trend reversal. Jo A-in, a researcher at Samsung Securities, stated, "This adjustment is more about normalizing overheated positioning than damaging the AI semiconductor industry," and noted that the earnings estimates for domestic companies remain on an upward trajectory, enhancing the valuation appeal of the Korean stock market. Therefore, rather than rushing into bargain buying, it is advisable to gradually increase exposure to AI-leading stocks by utilizing the short-term volatility expected from major events scheduled for this week.
However, with the U.S. Consumer Price Index (CPI) announcement and simultaneous expiration of futures and options scheduled for this week, short-term volatility is expected to continue.
Lee Kyung-min, a researcher at Daishin Securities, commented, "The excessive concentration of leading stocks has accumulated as a result," suggesting that while it is necessary to keep open the possibility of the KOSPI dropping to the low 7,000s or temporarily falling below that level, there is no need to hastily sell leading stocks.
* This article has been translated by AI.
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