Bloomberg: South Korea's Biggest Crisis Isn't a Market Plunge, But Eroding Trust

BlockBeats News, August 4th, Bloomberg columnist Shuli Ren stated that the core issue facing the South Korean stock market is not the deterioration of corporate fundamentals, but rather the market structure, regulatory policies, and investor trust being undermined.

The report mentioned that this year, the South Korean stock market has become one of the most globally popular yet highly volatile markets, with the KOSPI index plunging nearly 40% in just 27 trading days. Despite Samsung Electronics and SK Hynix benefiting from AI chip demand and the forward 12-month P/E ratio of the South Korean market dropping to around 5.5 times, investors may still choose to avoid the Korean market.

Ren pointed out that one of the key reasons for the abnormal volatility in the South Korean stock market is that regulatory authorities had previously approved single-stock leveraged ETF products. Due to the need for leveraged ETFs to mechanically rebalance based on market trends, buying on rallies and selling on declines, further amplified market volatility.

Goldman Sachs data shows that during KOSPI's peak in June this year, if SK Hynix's stock price fluctuated by 5%, the leveraged ETF rebalancing flows could account for 40% of the stock's average daily trading volume.

Furthermore, the market crash has also severely hit South Korean retail investors. Data indicates that the most popular SK Hynix leveraged ETF dropped by 84% from its June high, with approximately 360,000 accounts facing forced liquidation, of which 62% of account holders are under the age of 35.

Ren believes that the South Korean government has previously promoted capital market reforms and attracted retail investors but failed to sufficiently control leveraged risks during the AI trading frenzy, eroding the confidence of young investors in the domestic market.

She stated that the current issue in the South Korean stock market is not a lack of AI growth opportunities but rather the questioning of market rules, regulatory credibility, and trading stability. If high volatility persists, even if the AI industry continues to thrive, global funds may choose to bypass the South Korean stock market.