On a Wednesday in late July, South Korea's Kospi index climbed more than six percent, a sharp breath after weeks of suffocating decline that had carried it nearly thirty percent below its June summit. The fall had been fed by borrowed money coming undone, both in leveraged exchange-traded funds and in the shrinking pool of retail margin loans, and it had erased roughly 1.2 trillion dollars of value in a market that is now the scene of some of the most violent swings in global trading. As brokers begin to believe that the forced selling is nearing its end, the rebound is being read as a turning
Korean Stocks Jump as Brokers Say Margin Unwind Is Nearing Its End
Volatility now surpasses even Bitcoin's
Mark
Why does a 6% jump matter after such a big fall?
Mimi
Because it follows nearly 10% over two days, and it comes after about $1.2 trillion in value vanished since June. It suggests the selling pressure may be easing.
Mark
What was driving the selling?
Mimi
Mostly the unwinding of leveraged ETFs and shrinking retail margin loans, along with worries about the memory chip boom.
Luke
Note that the causes come from market participants, not from a measured breakdown. Nobody has shown how much each factor contributed.
Mark
And the claim that the unwind is nearly over?
Mimi
JPMorgan strategists, including Mixo Das, say about 75% of the leveraged ETF deleveraging looks done. Margin loans are at 33.4 trillion won, down 13% from the end-June peak.
Luke
That 75% is one bank's estimate, and the word is 'appeared.' The margin loan figure is hard data, but it only shows a 13% decline. It doesn't say where the floor is.
Mark
What about the brief halt in program trading?
Mimi
It's a safeguard that has become a hallmark of this market, whose volatility now surpasses Bitcoin's.
Luke
Also, the optimism from NH Investment's Peter Park is a broker's view. The story doesn't tell us whether chip demand will hold, and that remains open.
Il Polso
- The Kospi surged more than 6% on Wednesday, pushing its two-day gain to nearly 10% after a punishing slide that wiped out about $1.2 trillion since June.
- Forced selling from leveraged ETFs and collapsing retail margin loans triggered the rout, and the exchange briefly halted program trading to contain the turbulence.
- SK Hynix led the rebound with a gain above 9%, while SK Square and Samsung Electronics climbed as investors rushed back toward the chip giants.
- JPMorgan estimates about 75% of leveraged ETF deleveraging is complete, and margin loans have already fallen 13% from their end-June peak to 33.4 trillion won.
- The next test is whether memory chip demand justifies renewed confidence once the forced selling fades.
On a Wednesday in late July, South Korea's Kospi index climbed more than six percent, a sharp breath after weeks of suffocating decline that had carried it nearly thirty percent below its June summit. The fall had been fed by borrowed money coming undone, both in leveraged exchange-traded funds and in the shrinking pool of retail margin loans, and it had erased roughly 1.2 trillion dollars of value in a market that is now the scene of some of the most violent swings in global trading. As brokers begin to believe that the forced selling is nearing its end, the rebound is being read as a turning of the tide, though whether it holds will depend on something older and less certain than any ledger: whether faith in the memory chip boom can outlast the fear that it was overheated.
On Wednesday, South Korea's benchmark Kospi rose more than 6%, lifting its two-session gain to nearly 10%. The surge followed weeks of heavy selling that had pushed the index close to 30% below its peak, a fall so steep that the Korea Exchange briefly halted program buying to steady the market. That kind of safeguard has become a recurring feature of a market worth about $4 trillion, whose volatility now exceeds even Bitcoin's.
SK Hynix led the recovery, soaring more than 9% after its American depositary receipts had closed 14% higher on fresh optimism about artificial intelligence. SK Square, a proxy for SK Hynix, jumped too, and Samsung Electronics added more than 6%. For investors who had watched their holdings shrink since June, the rally brought welcome relief.
The damage since June has been severe, with roughly $1.2 trillion in market value lost. Traders blame the unwinding of leveraged ETFs and a dwindling pool of retail margin loans, along with lingering doubts about whether the memory chip boom can last.
Brokers now believe the forced selling may be nearly over. JPMorgan strategists estimate about 75% of leveraged ETF deleveraging is complete, and Korean data show margin loans down 13% from their end-June peak to 33.4 trillion won. Peter Park of NH Investment & Securities argued that with toxic leverage significantly reduced, the risk-reward picture has turned considerably more favorable.
What happens next rests on two questions: whether the leverage clean-up is as far along as estimated, and whether faith in memory chip demand holds.
On Wednesday, South Korea's benchmark Kospi index rose more than 6%, stretching its gain over two sessions to nearly 10%. The jump came after weeks of heavy selling that had pushed the index close to 30% below its peak.
The move was big enough that Korea Exchange briefly halted buying of program trading. That safeguard has become a recurring feature of a market worth about $4 trillion, whose volatility now exceeds even that of Bitcoin.
SK Hynix Inc. led the rebound, soaring more than 9%. Its American depositary receipt had closed 14% higher on improved sentiment around artificial intelligence. SK Square Co., which investors use as a proxy trade for SK Hynix, also jumped. Samsung Electronics Co., the other chip heavyweight, climbed more than 6%.
The rally offers relief after a punishing stretch. Since a peak in June, the selloff has wiped out roughly $1.2 trillion in market value. Market participants attribute the decline largely to two forces: the unwinding of leveraged exchange-traded funds and a shrinking pool of retail margin loans. They also point to growing worries over whether the memory chip boom can be sustained.
Brokers now say the forced selling may be close to done. Strategists at JPMorgan Chase & Co., including Mixo Das, wrote in a report this week that about 75% of the deleveraging in leveraged ETF positions appeared to be complete.
Data from the Korea Financial Investment Association points the same way. As of July 16, South Korean investors had cut their leveraged stock positions to the lowest level in three months. The outstanding balance of margin loans stood at 33.4 trillion won, down 13% from its peak at the end of June.
For some investors, the reduction is a good omen. Peter Park, a Korea equity sales associate at NH Investment & Securities Co., wrote in a note that with the toxic leverage now significantly reduced, risk-reward ratios have turned considerably favorable.
What comes next depends on two things: whether the leverage clean-up is as far along as the estimates suggest, and whether confidence in memory chip demand holds, since worries about the boom's sustainability were part of the selloff too.
Citazioni salienti
With toxic leverage now significantly reduced, risk-reward ratios have turned considerably favorable.— Peter Park, Korea equity sales associate, NH Investment & Securities
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Economy & Finance