South Korea’s Kospi Volatility Eases as Leveraged Bets Get Unwound

South Korea’s Kospi Volatility Eases as Leveraged Bets Get Unwound

Finance-Solutes.com Markets Desk · August 9, 2026

The most turbulent stretch for South Korea’s stock market may be behind it. Kospi volatility has cooled to its lowest level in roughly two months, according to Bloomberg, as forced liquidations pare back leveraged positions and tighter regulation curbs trading in the riskiest products tied to the country’s two dominant chipmakers.

Morgan Stanley estimates the market’s deleveraging process is now more than half complete, a view echoed by other major banks even as the Kospi remains sharply lower than its June record.

Investor takeaway: A wave of forced ETF and margin-loan liquidations that fueled some of the Kospi’s wildest swings on record appears to be tapering off. Foreign investors are still selling, but at a slower pace, while banks including Goldman Sachs continue to argue that record-cheap valuations and a booming memory-chip cycle make Korean equities worth the continued volatility.

A Violent Deleveraging Cycle Finally Slows

The Kospi tumbled roughly 40% from its June peak as leverage amplified the market’s swings in both directions. Korea’s volatility gauge, the VKOSPI, spiked to nearly 97 in June from below 30 at the end of 2025 — a jump that briefly made the index more volatile than Bitcoin, according to Bloomberg reporting. That spike has since retreated meaningfully as the leverage driving it has unwound.

South Korea’s market-wide 20-minute trading pause, triggered whenever the index falls 8%, was activated a record four times in July. The Kospi moved at least 5% in nearly half of the month’s trading sessions, including a record single-day gain of roughly 18% on July 31 — one of several whipsaw moves that defined the month.

Regulators Step In, Leveraged Trading Retreats

Financial authorities raised cash margin requirements on single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix effective July 31, following weeks of criticism that the products — introduced only in late May — were amplifying rather than absorbing market swings. Trading volume and assets in those leveraged products have since declined from their peak.

The unwind shows up clearly in margin-loan data. South Korea’s outstanding margin loan balance fell to 27.4 trillion won (roughly $19 billion) on August 4, its lowest level of the year, according to the Korea Financial Investment Association. Forced liquidations, which had surged into the tens of billions of won per day during the worst of the selloff in late July, have since calmed considerably.

Market snapshot (August 7, 2026 close): The Kospi closed at 6,258.77, down 0.60% on the day. SK Hynix fell 4.88%, while Samsung Electronics edged up 0.22%. The VKOSPI volatility gauge was down roughly 2.05%. Figures are time-sensitive — always check live pricing before acting on them.

Foreign Selling Continues, But Loses Momentum

Overseas investors remain net sellers of Korean equities, though the pace of outflows has slowed considerably from June’s peak. Foreign funds pulled a record amount out of Korean stocks in June, followed by smaller — but still substantial — outflows in July and the first half of August, as global institutions weigh the market’s still-elevated volatility against increasingly attractive valuations.

Cheap Valuations Meet a Cautiously Bullish Wall Street

The Kospi is now trading near a record-low 5.1 times projected 12-month earnings, a valuation level that has drawn some of Wall Street’s biggest names back to the bull case. Goldman Sachs has maintained its 12-month Kospi target of 12,000 points — implying roughly 90% upside from Friday’s close — while Morgan Stanley has argued that the worst of the technical unwind is largely over.

• Deleveraging, not fundamentals, drove the crash. Major banks broadly agree the plunge was a technical unwind of excess leverage rather than a reassessment of Samsung and SK Hynix’s underlying earnings power.
• Valuations are historically cheap. A forward P/E near 5x sits well below long-term averages, though in a highly leveraged market, prices can be driven more by liquidity than by fundamentals.
• Volatility hasn’t fully normalized. Even with the recent calm, swings remain elevated by historical standards, and some fund managers say they’re not yet comfortable adding exposure.
• Foreign flows are the swing factor to watch. A sustained slowdown in foreign selling would be one of the clearest signals that sentiment is genuinely turning.

“We are turning more constructive, but we’re still not entirely comfortable given volatility remains elevated,” said Isaac Thong, a fund manager at Aberdeen, according to Bloomberg.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial or investment advice. Equity prices, index levels, and volatility figures can change rapidly and should always be verified against real-time data before making any investment decision. For personalized guidance, Finance-Solutes.com’s free courses and expert advisors are available to help translate market developments like this one into a strategy that fits your own portfolio.

Source: Bloomberg, via Investing.com Vietnam

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