Korean single-stock leverage exchange-traded funds (ETFs) are increasing volatility in the domestic market and shaking up the Japanese stock market. The Nihon Keizai Shimbun reported that the Nikkei average's intraday volatility has exceeded 2% for three consecutive months, a first since the aftermath of the Lehman Brothers crisis. One of the main factors contributing to this trend is the active trading of leverage ETFs that track the price fluctuations of Samsung Electronics and SK Hynix at double the rate.
The volatility in the Japanese stock market is already unusual. The 'intraday volatility,' calculated by dividing the difference between the day's high and low by the previous day's closing price, recorded 2.6% in June and 2.5% in July, marking three consecutive months above 2%. This is the first time since the eight-month period from September 2008 to April 2009, following the Lehman crisis, that such sustained volatility has been observed.
During significant market events, such as the record daily drop of the Nikkei average in August 2024 and the global market turmoil in March 2020 due to COVID-19, intraday volatility also exceeded 2%. However, in both instances, volatility returned below 2% within a month or two. This time, despite the absence of a clear shock to the market, high volatility has persisted for three months.
The Nihon Keizai Shimbun analyzed the reasons behind this sustained volatility, highlighting the real-time transmission of Korean market movements to Japan, given the lack of time difference and overlapping trading hours. The active trading of leverage ETFs that track the price fluctuations of Samsung Electronics and SK Hynix has increased the volatility of these stocks, which in turn affects Japanese semiconductor companies like Kioxia Holdings. When high-priced tech stocks experience significant movements, the volatility of the Nikkei average also increases.
Market movements on July 27 exemplified this trend. The Nikkei average briefly rose over 600 points in the morning before falling more than 400 points in the afternoon, fluctuating by over 1,000 points during the day. Ultimately, it closed at 64,931, up 320 points from the previous weekend, but both the KOSPI and Nikkei averages turned downward at nearly the same time.
The Nihon Keizai Shimbun identified individual investors' short-term trading as a factor amplifying stock price fluctuations in the Japanese market. The balance of margin trading, where investors borrow money to purchase more stocks than they can afford, has exceeded 6 trillion yen (approximately $53.7 billion), reaching an all-time high. Shota Sando, an analyst at Tokai Tokyo Intelligence Lab, noted that the active margin trading of Kioxia, which has a high stock price, is contributing to the increased volatility of the Nikkei average.
Changes in the trading patterns of foreign investors are also contributing to stock price fluctuations. As foreign capital inflows into Japanese stocks increase, it has become common for daily trading volumes on the Tokyo Stock Exchange's Prime Market to exceed 10 trillion yen. Analysts suggest that foreign investors, who previously focused on trading stock index futures, are now shifting to individual stocks, leading to greater fluctuations in specific stocks.
The correlation between the Korean and Japanese stock markets was evident on the morning of July 28. While the Korean market experienced a significant decline, sell orders for semiconductor stocks like Advantest, as well as SoftBank Group and Kioxia, surged in Japan. The previous day's drop of over 2% in the U.S. Philadelphia Semiconductor Index (SOX) further contributed to the Nikkei average's decline, which fell by more than 2,000 points during the day, dipping below 62,800.
Among Japanese AI and semiconductor stocks, Kioxia's decline was particularly pronounced. Kioxia's stock price fell to around 44,550 yen during trading, breaking below the 50,000 yen mark, marking its lowest level in about two and a half months. This sell-off was exacerbated by a more than 11% drop in U.S. peer SanDisk and nearly a 5% decline in NVIDIA, alongside concerns over excessive investment in AI and deteriorating memory supply conditions.
This week, Samsung Electronics and SK Hynix are set to announce their earnings, followed by Kioxia's results for the April to June period on July 31. Market analysts suggest that the upcoming earnings reports may lead to increased volatility in Kioxia's stock price, prompting investors to reduce their holdings.
* This article has been translated by AI.
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