The KOSPI's average daily volatility this month has been higher than in March, when the war between Iran and the United States and Israel broke out.
The KOSPI's average daily volatility for June 1-5 stood at 3.9%, according to Yonhap Infomax and Kiwoom Securities on Friday. The figure exceeded the 3.7% average daily volatility recorded in March, when the war between the United States, Israel and Iran erupted. The average daily volatility so far this year had been 3.0%.
In particular, the volatility on June 5, when the KOSPI plunged, surged to 4.0%. Cases in which the KOSPI's average daily volatility exceeded 4.0% since 1990 are rare. The average daily volatility was 5.7% during the foreign exchange crisis from November 1997 to February 1998, followed by 4.6% during the dot-com bubble collapse from June to November 2000, 7.4% during the financial crisis from October to December 2008, and 4.9% during the COVID-19 pandemic in March-April 2020.
One reason cited for the rise in the KOSPI's average daily volatility this month is the concentration in Samsung Electronics (005930.KS) and SK hynix (000660.KS), which carry large weightings in the index. With the combined weighting of the two stocks well above 50%, volatility increased as single-stock leverage products using these stocks as underlying assets were recently launched. "With just the two stocks, Samsung Electronics and SK hynix, accounting for half of the market capitalization, short-term volatility in the index will be inevitable when leading stocks enter a phase of resolving overheating and absorbing supply," said Lee Kyung-min, an analyst at Daishin Securities.
The short-term concentration of funds into related stocks ahead of the visit to Korea by Nvidia CEO Jensen Huang is also cited as a factor.
The recent global macro environment has not been entirely favorable to the stock market. As the war pushed international oil prices to soaring levels, inflation rose, prompting central banks around the world to freeze or raise their benchmark rates. Recently, Indonesia and Sri Lanka raised rates by 0.5 percentage point and 1 percentage point, respectively, and the Bank of Japan hinted at the possibility of a rate hike at its monetary policy meeting on June 15-16.
The U.S. Federal Reserve (Fed) will hold its Federal Open Market Committee (FOMC) meeting on June 16-17. At this meeting, the first since Chairman Kevin Warsh took office, projections suggest it will be difficult for the Fed to cut rates as U.S. President Donald Trump expects. The high won/dollar exchange rate is also one of the factors increasing stock market volatility.
However, the securities industry diagnosed that this volatility is volatility within a bull market, and that the KOSPI's earnings momentum is still valid. Regarding past cases in which volatility exceeded 4.0%, Han Ji-young, an analyst at Kiwoom Securities, noted, "All were downside volatility occurring during sharp market plunges caused by major crises, whereas this time it is unusual in that it is upside volatility occurring within a bull market."
"The semiconductor-led KOSPI earnings momentum and low valuation burden are still ongoing," she said. "Considering that a pattern of the stock market narrowing its declines as it approaches the close (during the session) is frequently observed, the fact that the support of leading stocks remains solid even in such a high-volatility market is a reassuring factor."
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