The one market where volatility is rising even as stocks surge

MW The one market where volatility is rising even as stocks surge

By Steve Goldstein

South Korean stocks have rallied this year. Unusually, so has volatility.

South Korea's stock market has surged this year - the Kospi Composite rose another 1.6% on Wednesday, to stretch this year's gains to an eye-popping 27% - as the fortunes of memory chips producers and also defense stocks propel shares in the Asian country.

The U.S.-listed iShares MSCI South Korean ETF EWY has soared 28% in 2026.

Typically, volatility falls as a stock market rises, and vice versa, because investors crave less uncertainty rather than more. But in South Korea, its version of the VIX, the Kospi volatility index, has doubled in less than two months, to a reading over 50.

Volatility in South Korea is rising along with the stock market.

Russell Clark, who authors the Capital Flows and Asset Markets blog, says what's happening is that South Korean investors used to low interest rates have been selling volatility via what are called autocallable instruments. They're called autocallable because if the underlying asset reaches a specific level at a specified time, the note automatically matures early.

"The weird thing about these autocallables is that they work best in a flat market. If markets go too high or too low, they have to be reset. With the Kospi continually hitting new highs, these long term sellers of volatility are constantly getting knocked out, which has meant that 'supply' of volatility is reduced, and spot VIX has to rise," he said.

What happens in South Korea stays in South Korea? Not necessarily. Clark points out that these Korean structured products have as underlying investments the S&P 500 SPX and other foreign stock markets, as well as tech stocks like Palantir (PLTR) and Tesla $(TSLA)$.

He says that a popular type of investment called vol targeting funds "must be getting very weird signals."

"My guess is that CTA and trend following funds are positioned in very weird ways - which means the chance that the market does weird things is elevated," he adds.

-Steve Goldstein

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February 04, 2026 05:08 ET (10:08 GMT)

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