Forecasts are emerging that the extreme volatility in the South Korean stock market may be entering its final stage due to leverage liquidation and tighter regulatory enforcement by authorities.
Bloomberg explained, "The balance of margin loans has decreased due to forced liquidation, and strengthened regulations on leveraged exchange-traded funds (ETFs) have led to a decline in trading volume and asset size for products linked to leading semiconductor stocks Samsung Electronics and SK Hynix."
It added, "This suggests that the leverage-driven overheating that fueled extreme market volatility has been resolved to some extent."
The KOSPI 200 Volatility Index soared to an intraday high of 97.99 on June 29, marking its highest level since the 2008 global financial crisis.
It hovered above the 90 range until late last month, but plummeted to the mid-70s entering this month.
Bloomberg further mentioned that the KOSPI's 12-month forward price-to-earnings ratio is at 5.1 times, approaching a record low, and analyzed that "following the recent sell-off, South Korean stocks appear undervalued by certain indicators."
At the same time, it pointed out that global asset management companies are hesitant to easily re-enter the South Korean market due to the extreme market volatility witnessed previously.
Bloomberg reported, "Even after the drop, volatility remains high, leaving investors to weigh historically cheap valuations and solid earnings forecasts against the risk of further sudden fluctuations."
An official from global asset management firm Templeton Investment noted, "While it is clear that Samsung Electronics and SK Hynix are currently inexpensive and have solid earnings outlooks, the extreme volatility seen so far is making investors cautious in the short term."
Reported by Kim Jiuk | Video by Na Hong-hee | Graphics by Lee Jung-joo | Produced by SBS Digital News
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