South Korea's Stock Market Suffers from Wild Ride Due to Samsung and SK Hynix
The stock market in South Korea has seen unprecedented volatility this year, with its benchmark Kospi Index reaching a whopping 60% volatility level. This is almost double that of Japan's Nikkei 225 and even surpasses the notorious instability of Bitcoin.
The main drivers behind this wild ride are Samsung Electronics and SK Hynix, two companies whose profits have exploded due to their supply of memory chips for artificial intelligence systems. Their stocks now account for over 50% of the Kospi Index, with listed affiliates taking their shares even higher.
The AI boom has led to a massive influx of funds into AI platforms and data centers, but these investments are highly sensitive to changes in investor sentiment. A recent slump in SK Hynix's shares wiped off 27% of its market value in just three trading days, while the Kospi Index hit a record 18% rally after surging by the South Korean market's 30% daily limit.
The use of leveraged ETFs has further amplified the volatility. These investment funds, popular among individual investors, use derivatives and debt to amplify daily returns but are known for their riskiness. The Korea Exchange has even triggered its 'circuit-breaker' mechanism nine times this year to prevent flash crashes and investor panic.
The government and central bank officials have pledged measures to stabilize the market, including capping exposure to leveraged ETFs at a set share of investors' total portfolios and raising trading costs. Finance Minister Koo Yun-cheol acknowledged that authorities should have examined the products more carefully before their launch.