The Korean stock market experienced a sharp increase in volatility this year following the May 27 launch of single-stock leveraged products tied to Samsung Electronics and SK Hynix. KOSPI recorded 25 days with 5% or greater price swings this year compared to 2 days last year, according to NH Investment & Securities data. The 2x leveraged products amplify daily gains and losses in the two stocks, which represent half of KOSPI's market capitalization, creating a feedback loop where price declines trigger further selling to rebalance positions. Wall Street Journal noted on the 6th that volatility in the Korean stock market has been magnified by leverage products on these two stocks, while the S&P 500 recorded zero days of 3% or greater volatility during the same 122-trading-day period this year.
KOSPI Volatility Days Surge After Leverage Product Launch
KOSPI experienced 3% or greater price movements on 42 days this year through the 9th, according to NH Investment & Securities. Before the May 27 product launch, 26 out of 96 trading days (27%) saw 3%+ volatility. After launch, 16 out of 30 trading days (53%) recorded such swings—a doubling of the volatility rate. Days with 5% or greater movements increased from 16% pre-launch (15 out of 96 days) to 33% post-launch (10 out of 30 days). Compared to last year, 3%+ volatility days jumped 367% from 9 days to 42 days, while 5%+ days surged 1,150% from 2 days to 25 days. KOSPI's first-half intraday average volatility reached 3.3%, the highest since the first half of 1998 (3.51%), according to Korea Exchange data.
The leverage products require daily rebalancing to maintain 2x exposure to the underlying stocks' price movements. When stock prices fall, the products must sell additional positions to match the reduced principal amount, creating a compounding downward pressure. From the beginning of this month through the 9th, Samsung Electronics declined 11.6% and SK Hynix fell 14.6%, while their respective leverage products dropped 24.2% and 31.9%. An office worker surnamed Han (31) from Mapo-gu, Seoul, purchased 15 million won of SK Hynix leverage products in early this month and lost one-third of the principal as the stock price fell.
Retail Investors Drive 92.4 Trillion Won Trading Volume
Individual investors accounted for approximately 92.4 trillion won in trading volume of single-stock leverage products from May 27 through the 9th, according to Korea Exchange. This figure is seven times the products' market capitalization of 12.6 trillion won. The cumulative returns of major single-stock leverage products since launch range from -16% to -25%. Wall Street Journal stated in an article titled "The World's Hottest Market Risks Becoming a Squid Game" that "it's questionable how much more individuals in a country of 51 million can bet" and warned that "when the party ends, losses could mostly remain with local retail investors."
Analysts Warn of Panic Selling Risk
Kim Seok-hwan, a researcher at Mirae Asset Securities, stated that "due to the nature of leverage products, if stock price declines do not stop and losses grow to an unbearable level, a point will inevitably come when new capital inflows cease." Kim added that "if fear of principal loss reaches an extreme, there is also the possibility of transitioning to a 'panic selling' phase where sell orders pour out instantly."
Single-stock leverage products are designed to deliver twice the daily return of an individual company's stock price movement. If Samsung Electronics or SK Hynix stock prices rise 5%, the leverage product returns approximately 10%. While SK Hynix shares trade above 2 million won per share, leverage products are priced around 20,000 won, making them more accessible to retail investors.
FAQ
How many days did KOSPI experience 5% or greater volatility this year compared to last year?
KOSPI recorded 25 days with 5% or greater price swings this year compared to 2 days last year, according to NH Investment & Securities data.
What trading volume did retail investors generate in single-stock leverage products?
Individual investors accounted for approximately 92.4 trillion won in trading volume from May 27 through the 9th, which is seven times the products' market capitalization of 12.6 trillion won, according to Korea Exchange.
What is KOSPI's current volatility level compared to historical data?
KOSPI's first-half intraday average volatility reached 3.3%, the highest since the first half of 1998 when it was 3.51%, according to Korea Exchange data.
