Foreign media warns Samsung Electronics and SK Hynix of leverage risks: "May become a casino, Squid Game"

On the 6th local time, the U.S. Wall Street Journal (WSJ) compared South Korea's stock market to a "casino" and Netflix's drama series "Squid Game," reporting that the world's hottest market over the past year is now facing crisis due to extreme volatility. WSJ analysis stated: "Although the KOSPI index rose by 165% over the past year, the climb was extremely perilous."

Up 165% in one year… but daily rollercoaster rides

According to WSJ, based on the closing price from last Thursday, there were 77 trading days in the past year when the KOSPI surged more than 2% in a single day. Meanwhile, the S&P 500, the representative U.S. index, experienced only five such days with fluctuations exceeding 2%. The KOSPI saw 44 trading days with daily swings surpassing 3%, compared to zero for the S&P 500; it also recorded 23 trading days with daily movements exceeding 5%. WSJ noted: "Such intense volatility actually becomes highly attractive for Korean retail investors who enjoy the act of trading itself."

Maxim Bessou, founder of Arkevium Capital, a quantitative hedge fund, said: "I've never seen such a clearly divided market trend. For retail investors following the crowd, volatility is precisely the appeal."

Samsung Electronics and SK Hynix driving the index

WSJ pointed out that market volatility is increasingly being dominated by two semiconductor giants—Samsung Electronics and SK Hynix. Given their already high weightings in the index, any price swings in these stocks directly shake the entire index.

WSJ further noted that leveraged products have amplified this volatility. Exchange-traded funds (ETFs) designed to track the daily performance of underlying assets at two times or higher levels mechanically buy and sell according to the index’s direction, thereby magnifying price swings. WSJ reported: "Before domestic leveraged products were approved in May, Korean investors had already purchased similar ETFs listed overseas. A Hong Kong-based fund tracking SK Hynix’s movements two-fold became the largest single-category leveraged product globally." Regulatory bodies including the Bank of Korea have expressed concern and are actively seeking ways to curb excessive speculation.

WSJ reports: "Under these circumstances, foreign investors are pulling out of this market." In the first half of this year, foreign capital inflows exceeded $100 billion (approximately KRW 154 trillion), but in June alone, outflows reached $30 billion. South Korea and Taiwan account for nearly half of major emerging market indices, prompting foreign investors to diversify their investment targets. Thus, warnings are issued: "The party is nearing its end—the bulk of losses will likely be borne by domestic retail investors." Although South Korea’s market, with its population of 51 million, has grown into one of the world’s largest, without solid corporate earnings to support it, the risk may prove unsustainable.

WSJ analysis states: "U.S. regulators should also draw lessons from the Korean case." "With valuations reaching historic highs and capital heavily concentrated in specific sectors, the U.S. approved high-risk products while abandoning safety mechanisms. Now, they should calmly observe the storm about to unfold in Korea."

Source: Chosun Ilbo

Original article: toutiao.com/article/1870044501812234/

Disclaimer: This article represents the personal views of the author