Recent volatility in the Korean stock market was largely driven by mechanical selling pressure from retail investors unwinding leveraged positions, according to new analysis. However, strong corporate fundamentals suggest investment opportunities may emerge once forced liquidations subside.
Robeco Asset Management said on the 13th that Korean market volatility was amplified not only by deteriorating investor sentiment but also by mechanical selling during the leverage unwinding process.
The KOSDAQ index has experienced significant swings recently, plunging approximately 18% since late February before rebounding to roughly 5% below month-start levels as of the 10th. Robeco noted that while geopolitical tensions in the Middle East contributed, excessively accumulated credit leverage was the primary factor amplifying market volatility.
Retail investor leverage reached record highs during the 2025 bull market. Margin trading balances swelled to approximately 32.8 trillion won, with outstanding loans exceeding 1 trillion won. When stock prices reversed course, automatic margin calls triggered a cascade of forced liquidations, spreading selling pressure across the broader market.
Robeco expects these forced liquidations to gradually ease. Institutional investors have resumed buying activity, while the Korean government's $68 billion market stabilization fund could help restore market stability.
Strong corporate fundamentals were also cited as a positive factor. Large-cap stocks in semiconductors, automobiles, and EV batteries have maintained their competitive positions despite recent price corrections. From a long-term investment perspective, risk-adjusted expected returns have actually improved.
Robeco noted that the Korea Discount, which had been narrowing due to the government's Value-up Program, has widened again during the recent market correction. This creates selective investment opportunities in quality stocks based on valuation metrics including price-to-earnings ratio, price-to-book ratio, and cash flow.
"Korean companies' pivotal role in the global artificial intelligence industry will also be a positive factor for the domestic stock market over the medium to long term," said Jan de Bruijn, Portfolio Manager for Emerging Markets Equities at Robeco.