Korea's economy is expected to post growth of around 3% and a current account surplus exceeding $250 billion this year, yet volatility in financial markets is instead increasing. As foreign investors take profits from a stock market driven solely by semiconductors, the KOSPI has swung wildly while the won and bonds continue to weaken. In particular, with the concentration of capital into the stock market and single-stock leveraged exchange-traded funds (ETFs) amplifying volatility, foreign media have warned that "Korea's market is coming to resemble 'Squid Game.'"
The KOSPI closed at 7,656.31 on Sunday, down 395.02 points, or 4.91%, from the previous trading day. At one point it fell more than 8%, triggering a circuit breaker that halted trading for 20 minutes. It was the 11th such event on record and the sixth this year.
The market decline was led by foreign investors. Overseas investors sold a net 2.93 trillion won on the main bourse that day, marking the 13th consecutive trading session. Foreign investors have sold about 171.43 trillion won on the KOSPI this year alone.
Experts agree that the market has risen centered on the "top two" of Samsung Electronics and SK hynix. What matters is that this semiconductor-only rally is affecting the financial market as a whole. Specifically, one axis runs from "surging semiconductor stocks → profit-taking by overseas investors → weakening won," while another axis spreads from "concentration of investment capital into semiconductors → rising market and lending rates → increasing delinquency rates."
Within and around the government, there is talk that rising semiconductor stock prices and leveraged ETFs are only enriching foreign investors. The won-dollar exchange rate is staying in the 1,500-won range on their currency-conversion demand. In the month after leveraged ETFs were introduced, the KOSPI moved more than 3% on 11 of 21 trading days.
The bond market is also on thin ice. That day, the credit spread on "AA-" rated corporate bonds—the yield gap between three-year corporate bonds and three-year government bonds—widened to 0.692 percentage points, the widest of the year. Amid rising rates, delinquencies among small and medium-sized enterprises are also surging.
Meanwhile, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol said regarding leveraged ETFs being cited as a cause of stock price volatility, "We are consulting on measures to address this."
