The KOSPI 200 Volatility Index (VKOSPI), known as Korea's "fear gauge," has reached a record high. Market anxiety has actually intensified even as the KOSPI rebounded more than 8%.
Fear Gauge Surpasses Financial Crisis Levels
According to Koscom Check on Tuesday, the VKOSPI closed at 91.23, up 19.04% from the previous session. It opened at 86.55 and widened its gains throughout the day to set a record high.
This is the highest level since the exchange began official publication in April 2009. Tracing back to data from before official publication, it also surpassed the 89.30 mark recorded on Oct. 29, 2008, during the financial crisis. The figure far exceeded the previous high of 83.58 set on March 5 this year, shortly after the U.S. and Israeli attacks on Iran.
The VKOSPI is an index that measures expected volatility over the next 30 days as reflected in option prices. It typically rises when the KOSPI plunges, and is classified as "caution" above 20 and "alert" above 30. The higher the index, the more difficult market participants consider it to predict future stock movements.
However, the index can also jump in a rising market like Tuesday's when investor anxiety and market uncertainty are high. Analysts said the index was driven up as the FOMO (fear of missing out) phenomenon overlapped amid the sharp rebound. It also means that forecasts for the KOSPI's future direction are sharply divided between gains and losses.
Rebound, But Direction Remains Murky
On Tuesday, the KOSPI closed at 8,096.93, up 8.18% from the previous session, while the KOSDAQ closed at 967.81, up 6.19%. However, this was not enough to recover the losses of the past three days.
Variables still remain ahead. Concerns that a correction could resume depending on the U.S. May consumer price index (CPI), to be released Wednesday evening Korea time, and Oracle's earnings, to be disclosed Thursday morning, are making the direction difficult to gauge. As both events could directly affect global investment sentiment, market tension is expected to continue for the time being.
Meanwhile, sidecars were triggered consecutively in both the stock market and the KOSDAQ market following the sharp rebound early in the session. A sidecar is a mechanism that suspends the effect of program buy orders for five minutes when futures prices change sharply.
