KOSPI's extreme volatility surpasses Bitcoin, driven by retail investors and leveraged products

South Korea's stock market, the KOSPI, is exhibiting unprecedented volatility, with daily fluctuations exceeding even those of Bitcoin, largely fueled by a surge in retail investor activity. This intense market behavior has captured the attention of President Lee Jae-myung, who previously aimed to establish stocks as a major investment vehicle.

While the KOSPI reached a symbolic 9,000 points, a target seemingly met by the administration's policies, the market's subsequent sharp decline and rapid recovery highlight its instability. The index plummeted by 8.95% on July 13th, only to rebound significantly the next day. This extreme movement has led to frequent activation of trading circuit breakers and sidecars, indicators typically seen during periods of global financial crisis.

Retail investors have significantly increased their participation, doubling their deposits to 128 trillion won by mid-June. Furthermore, margin trading, or 'debt investing,' has surged, with credit transactions reaching 37 trillion won, a twofold increase from the previous year. This influx of capital, particularly into large-cap stocks like Samsung Electronics and SK Hynix, has driven their individual stock volatilities to extreme levels, with SK Hynix showing 90% volatility and Samsung Electronics at 78%.

The market's volatility is further amplified by the popularity of single-stock leveraged products. These products, which track the daily returns of specific stocks like Samsung Electronics and SK Hynix at double the rate, have accounted for a third of all ETF trading volume and 24% of the KOSPI's total trading volume since their launch. This concentration of investment has distorted market dynamics, according to market analysts.

Economists express concern over the rapid price increases, noting that Samsung Electronics and SK Hynix saw gains of 500% and 900% respectively in the year leading up to the KOSPI's peak. This rapid ascent, they argue, is unsustainable and contributes to the heightened volatility as investors anticipate sharp corrections. President Lee Jae-myung has called for measures to address the impact of these single-stock leveraged products on the market.