KOSPI Holds Near 7,000 as Bank of Korea Flags Volatility

On Thursday, South Korea’s KOSPI slipped to roughly 6,920 in early trading before recovering to 7,058.06, a 0.09% gain for the day. The Bank of Korea measured the index’s daily volatility at about 4.1% this year, the widest among major markets and roughly double the levels seen in Japan and Taiwan. Foreign investors sold a net 496.4 billion won of shares during the session.

The central bank’s September credit report attributed the recent steep decline from above 9,200 to the low 6,200s largely to heavy concentration in the semiconductor sector. Samsung Electronics and SK Hynix together account for 51.2% of the index’s market capitalization and accounted for 69.3% of the index’s drop during the selloff, the report found.

Bank officials highlighted rapid growth in leveraged exchange-traded funds tied to the two chipmakers. Deputy Governor Park Jong-woo noted that two-times leveraged ETFs linked to Samsung and SK Hynix expanded from $3.33 billion to $10.7 billion in one month after their May listings. Retail margin loans also reached record levels before being sharply unwound in the market correction.

The Bank of Korea recommended closer monitoring of leveraged ETFs, adding that recent shrinkage in those funds does not remove the need for continued oversight.

Energy and bond-market moves added pressure on the market. Brent crude remained above $100 a barrel amid renewed fighting in the Middle East, and the U.S. 10-year Treasury yield was near 4.84%. South Korea’s reliance on energy imports makes the economy sensitive to oil-price swings.

Thursday’s session coincided with a quadruple-witching day, when stock index futures, stock index options, single-stock futures and single-stock options expire at the same time, a calendar event that typically raises derivatives-driven volatility. Kiwoom Securities analyst Han Ji-young expects buybacks and the return of foreign investors to provide support as the index tries to hold the 7,000 level.