The Direxion Daily MSCI South Korea Bull 3X Shares (KORU), an exchange-traded fund (ETF) that tracks the KOSPI at three times leverage, has halved in price within a week. With a semiconductor stock shock compounded by rising odds of a U.S. interest rate hike, KOSPI's swings are also expected to widen.
According to the financial investment industry on Saturday, KORU, listed on the New York Stock Exchange, closed Thursday at $610.01, down 41.89% from the previous trading session. As recently as June 1, it had surged to $1,264, but it has fallen about 51.7% over the course of a week. KORU tracks the "MSCI Korea 25/50 Index," which includes major KOSPI stocks such as Samsung Electronics and SK hynix, at three times daily leverage, and is regarded as a leading indicator that directly gauges the direction of Korea's stock market.
The decline was largely driven by spreading concerns that the Federal Reserve (Fed) could raise interest rates, after U.S. nonfarm payrolls for May came in 102% above the market estimate of 85,000. The U.S. 10-year Treasury yield (4.536%) again broke past 4.5%, and U.S. technology stocks all weakened. The Philadelphia Semiconductor Index (SOX) fell 10.3%, and semiconductor stocks alone saw $1.3 trillion (2,026 trillion won) in market capitalization evaporate. KOSPI night futures also hit the lower limit at -8%.
KOSPI's average daily volatility this month has reached 3.9%, exceeding even the 3.7% recorded in March when the Middle East war broke out. It fell from a closing price of 8,801.49 on June 2 to 8,160.59 on June 5. The KOSPI 200 Volatility Index (VKOSPI), known as Korea's fear index, has continued its sharp climb in the 70-point range. Amid the soaring won-dollar exchange rate, foreign investors' net selling continued for 20 consecutive trading sessions. Seo Sang-young, a researcher at Mirae Asset Securities, said, "The key factors are the direction of Treasury yields through U.S. inflation data, including the consumer price index (CPI) on June 10 and the producer price index (PPI) on June 11, as well as whether artificial intelligence (AI) investment will be sustained, which will be confirmed through Oracle's earnings." He added, "In Korea, attention should be paid through the futures and options expiry day on June 11."
An official at one securities firm's research center said, "Weakness in semiconductor stocks and a rising exchange rate are stoking forecasts for a correction, so a shaky start is expected." He added, "Unless an earnings outlook or event emerges that can reverse the mood, a market under greater downward correction pressure will continue."
