The South Korean stock market has experienced a strong rebound recently. On August 13, the market continued its rally, with the KOSPI index surging over 3%, Samsung Electronics rising more than 5%, and SK Hynix climbing over 7%. From the low point on July 30, the KOSPI has rebounded nearly 23%, marking its return to a technical bull market.
Previously, the South Korean stock market had undergone a historic crash, falling from over 9,000 points in mid-June to around 7,200 points on July 8, entering a technical bear market. It continued to decline to below 5,600 points by the close of July 30. During this period, circuit breakers were frequently triggered, causing massive losses for retail investors. On July 9 alone, over 1.2 million leveraged retail accounts hit margin call thresholds, with approximately 320,000 to 360,000 accounts fully liquidated by brokerages. Some accounts even owed money to brokers.
In June, a Korean girl remarked, "This is the best summer I've had as an adult. I found a job, made five years' salary in the stock market, traveled the world with a passport, and saved up for a week's salary to swim on an island." By July, the tone shifted dramatically. A Korean boy lamented, "This is the worst summer I've experienced as an adult. I was envious of colleagues' gains, threw all my savings into the stock market with five times leverage, hit a circuit breaker, got liquidated, lost five years of savings, saw the won depreciate by 20%, and can't even scrape together next week's rent."
South Korean regulators quickly intervened, tightening margin requirements for single-stock leveraged ETFs, leading to a sharp decline in daily trading volumes for such products. Meanwhile, investors reduced their leverage, and market volatility fell to its lowest level since April. With the ongoing rebound, the "best summer" for Korean girls seems to be returning.
Mark Newton, Technical Strategy Director at Fundstrat Global Advisors, stated that with the strong comeback of South Korea's heavyweight memory chip manufacturers, the stock market's rebound has further room to grow. Driven by gains in Samsung Electronics and SK Hynix, the iShares MSCI Korea ETF has broken through key technical levels, improving the short-term outlook for the Korean market. "The recent moves in this ETF confirm a reversal pattern for Korean stocks. Technically, this pattern provides momentum for further near-term gains in the KOSPI index," he noted.
The recovery of memory chip stocks like Samsung and SK Hynix is supported by their increased reinvestment in technology, while some major U.S. tech companies continue to struggle. Newton added that the bigger signal may come from memory stocks themselves, which, after being hit hardest in the recent tech sell-off, have begun to outperform the broader tech sector for the first time since June. He described this as "a short-term positive omen for AI stocks and the Korean stock market technically," adding that "memory stocks are the last major corner of the AI tech theme to start rising."
However, he cautioned that if U.S. Treasury yields and the dollar begin to climb again, the Korean market's rebound could lose momentum later this month. Regardless, Korean stocks, particularly memory and chip stocks, "seem like suitable tools for short-term risk exposure."
Notably, the South Korean stock market is highly concentrated. Samsung Electronics and SK Hynix are the two most important heavyweight stocks in the KOSPI, with semiconductors being a core industry for exports and economic growth. When global fund flows shift from "AI demand growth" to "AI valuation overvaluation," the Korean market cannot stay immune. This is especially true after the significant rally in the two semiconductor leaders in the first half of the year, which further concentrated market funds and index weight in a few tech stocks.
Goldman Sachs has pointed out that for every 1 percentage point increase in the combined weight of Samsung Electronics and SK Hynix in the Korean index, foreign investors could withdraw about $20 billion. The volatility of these two stocks alone can shake the entire market.
Additionally, the small size of the Korean stock market and its high proportion of program trading amplify volatility. Market data shows that trading in Samsung Electronics, SK Hynix, and their leveraged ETFs once accounted for over 70% of total market turnover, with capital flows highly concentrated. In this "small-pond" environment, concentrated program trading orders can easily break index thresholds in a short time. Huatai Securities' strategy team noted that the main cause of this volatility was the daily rebalancing mechanism of leveraged ETFs, which amplified market movements.
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