South Korea's KOSPI index has seen a decline from its historical peak, briefly touching the 20% threshold that signals an approach to a technical bear market.
The nation's finance minister urgently convened a meeting with the central bank and financial regulators, directly pointing to the high concentration in the semiconductor sector as a key factor amplifying market fluctuations.
Regulators are also focusing on rapidly expanding single-stock leveraged ETFs, warning they are acting as a catalyst in this period of intense volatility.
The South Korean stock market is facing its most severe test this year, with the benchmark KOSPI index's drop from its all-time high briefly reaching 20%, nearing the technical bear market threshold.
Regulators held an emergency meeting, warning that excessive concentration in the semiconductor sector has become a core risk amplifying market volatility.
According to reports, Finance Minister Joo Hyung-hwan convened a meeting on Wednesday with the central bank governor and heads of major financial regulatory bodies.
A statement released after the meeting indicated that profit-taking by foreign and institutional investors, portfolio rebalancing, and shifting expectations for the global artificial intelligence sector have collectively driven up market volatility.
The statement's wording directly addressed the concentration issue in the semiconductor sector, stating that "increased concentration in the semiconductor sector has become a driver of market volatility, and the impact of chip stock fluctuations on the overall stock market is intensifying."
The KOSPI plunged as much as 5.7% during Wednesday's session, hitting its lowest level since May 20, before recovering some losses driven by a rebound in chip stocks.
It remains down approximately 15.6% from the historical high set on June 22.
SK Hynix Inc saw an intraday decline of up to 5%, while Samsung Electronics Co Ltd fell as much as 6.9% at one point.
Notably, Samsung Electronics Co Ltd had earlier this week reported quarterly profit soaring 19-fold year-over-year, yet its stock price remained under pressure, indicating that market doubts about the sustainability of AI investments are outweighing positive fundamental news.
From Annual Top Performer to Bear Market Brink
The South Korean stock market was among the world's best-performing markets earlier this year.
From the start of the year to its historical peak on June 22, the KOSPI had surged approximately 116%, and its year-to-date gain remains around 73%, still placing it among the top-performing major global benchmark indices.
However, this rally was highly dependent on two chip giants, Samsung Electronics Co Ltd and SK Hynix Inc, making the market particularly vulnerable when sentiment towards AI reversed.
Over the past several weeks, the KOSPI has experienced sharp swings as investors interpreted every piece of AI industry news, with the market attempting to assess whether the rally could be sustained.
An investment portfolio manager stated, "A lot of the volatility comes from uncertainty about the fundamentals. We are indeed seeing strong demand for various semiconductors driven by AI, but this largely depends on the roughly $1 trillion in capital expenditures from a few large tech companies."
He noted that if this scale of chip spending proves unsustainable, downside risks will materialize.
Leveraged ETFs Acting as Volatility Amplifiers
Regulatory concerns are not only directed at the semiconductor sector itself but also focused on the rapidly expanding single-stock leveraged ETF products.
South Korea's Financial Supervisory Service stated on Tuesday that it would monitor the impact of single-stock leveraged ETFs linked to chip stocks on the market and, if necessary, review the marketing practices of asset management companies.
The Bank of Korea issued a warning on Sunday, stating that single-stock leveraged ETFs could amplify one-sided trading, exacerbate concentration in specific stocks, and increase market volatility, and indicated it would coordinate with relevant agencies to address related risks.
According to reports, leveraged ETFs amplify volatility in both directions and have become a significant driver of the KOSPI's severe swings during this period.
Circuit Breakers Frequently Triggered, Regulatory Pressure Escalates
The intensity of market volatility has left its mark at the systemic level.
Earlier this week, the KOSPI triggered its circuit breaker mechanism again, marking the sixth such event this year and the twelfth in the history of the Korean stock market.
The trigger was the sharp volatility in heavyweight chip stocks like Samsung Electronics Co Ltd and SK Hynix Inc.
Faced with escalating market risks, the response from South Korean regulators is also gradually intensifying.
From the central bank's risk coordination statement to the financial supervisor's ETF monitoring commitment, and the cross-departmental joint meeting chaired by the finance minister himself, a series of intensive statements indicate that authorities are treating this round of volatility as a financial stability issue requiring a systematic response, rather than merely a normal market adjustment.
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