Last year, the average daily return volatility of the KOSPI was 1.4%. However, in the first half of this year, the volatility surged to 3.6%, nearly doubling. This is the highest level among major global stock markets, indicating a significant number of days with sharp rises and falls. The 'single-stock leverage' (referred to as '단종레') has been identified as a major contributor to this volatility. Yet, even after the implementation of regulations on July 30, including an increase in the basic deposit requirement, the KOSPI shows no signs of calming down. Since the regulations took effect, there have only been two days when the volatility was below 3%.
KOSPI Volatility Among Major Countries is the Worst
According to the financial investment industry and the Capital Market Research Institute, the KOSPI's daily return volatility for the first half of this year reached 3.6%, about double last year's annual average of 1.4%. This is the highest level among 36 countries analyzed by the Capital Market Research Institute. In comparison, Japan's TOPIX volatility increased slightly from 1.3% last year to 1.5% in the first half of this year, while Taiwan's weighted index rose from 1.5% to 1.8%. Even the U.S. S&P 500 index saw a decrease in volatility from 1.2% to 0.9%.
The monthly volatility is even more alarming. In March and June, the KOSPI recorded volatilities of 4.8% and 4.7%, respectively. In July, there were 15 trading days where the KOSPI experienced fluctuations of over 4%. Notable extreme fluctuations occurred on July 18 (down 10.84%) and July 31 (up 17.91%).
In response to the severe volatility, the government expedited the implementation of '단종레' regulations on July 30. However, the effects have been minimal. In the six trading days following July 30, the index experienced fluctuations of over 4% on four occasions. On August 6, the KOSPI closed at 6,296.38, down 301.88 points (-4.58%) from the previous trading day. Although the trading volume of 16 '단종레' products fell below 1 trillion won for the first time since their launch, the KOSPI's volatility remains high.
Is Samsung Electronics and SK Hynix's 'Tightrope Walking' the Problem?
Market analysts are questioning whether '단종레' is indeed the primary cause of the increased volatility. In a report titled 'Review of the Background of Rising Stock Market Volatility,' senior researchers Kim Jun-seok and Jang Geun-hyuk from the Capital Market Research Institute pointed to the stock market's excessive reliance on two major stocks, Samsung Electronics and SK Hynix, as a structural issue contributing to volatility.
The report indicates that the market capitalization share of Samsung Electronics and SK Hynix, which was around 23% at the beginning of last year, surged to 55% by the end of June (59% based on the KOSPI 200). With more than half of the index represented by just two companies, any external shocks, such as uncertainties in the global memory semiconductor industry or U.S.-China technology conflicts, can lead to significant declines in the KOSPI.
The recent drop in the KOSPI was largely attributed to declines in Samsung Electronics and SK Hynix, which fell by 6.30% and 10.37%, respectively.
Other experts share similar views. Lee Byung-geon, head of research at DB Securities, explained, "The sharp fluctuations in the index are not due to leverage products, but rather because the buying momentum from individual investors has weakened in response to external negative factors, such as profit-taking by U.S. big tech companies, leading to thinner liquidity." Kim Hak-kyun, head of research at Shin Young Securities, noted, "While the reduction in trading volume of single-stock leverage products indicates some regulatory effect, the volatility itself is not solely due to these products. The essence of the volatility lies in domestic and external variables and uncertainties arising from stock price surges, with single-stock leverage merely amplifying these factors. He added that concerns about whether major big tech companies will continue to purchase semiconductors represent fundamental uncertainties driving stock price fluctuations."
* This article has been translated by AI.
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