Has South Korea’s “roller-coaster KOSPI” finally settled? VKOSPI falls below 40 after six months

South Korea’s “fear index” fell below 40 during trading on Sept. 4, offering a sign that the market’s recent roller-coaster ride may be easing. The KOSPI 200 Volatility Index, known as VKOSPI, stood at 39.50 at 2:49 p.m., down 6.88% from the previous session, according to the Korea Exchange.

It was the first time the index had moved below 40 since Feb. 12, when it reached an intraday low of 39.13. VKOSPI reflects expected future volatility embedded in KOSPI 200 options prices. It generally rises when stock prices fall sharply, which has earned it the nickname “Korea’s fear index.”

The gauge had traded around the 20 level as recently as September last year. It began moving higher as the stock market climbed, then accelerated after single-stock leveraged exchange-traded funds linked to Samsung Electronics and SK hynix were launched at the end of May. VKOSPI reached 97.99 during trading on June 29.

The extreme swings repeatedly triggered market safeguards, including sidecar measures, in the KOSPI and KOSDAQ markets. Financial authorities later tightened rules on single-stock leveraged and inverse products. At the end of July, they raised the required deposit for high-risk single-stock derivatives from 10 million won to 30 million won.

Trading volumes in the Samsung Electronics and SK hynix single-stock leveraged products fell rapidly after the measures. On Sept. 4, the KOSPI opened 1.14% higher at 6,654.36, while the KOSDAQ opened 1.53% higher at 802.32. The won-dollar exchange rate stood at 1,355.9 won.