Lyons: Korean Stock Volatility Out of Control with Heavy Retail Participation

On June 23, the South Korean KOSPI index plummeted by 9.99% on Tuesday, marking its largest drop in three months, as overseas investors sold off stocks following signals from Korean regulators about overheating in the chip industry. Alexander Redman, Chief Equity Strategist at CLSA, stated that Tuesday's correction highlights the increasing volatility in the market, with critics concerned that the market has expanded excessively and risks are rising. 'Volatility has gotten out of control. This level of volatility cannot be explained without significant retail participation,' Redman said. 'What worries me is that retail investors have taken the lead, as they are using a lot of margin, even though their ratio to market capitalization is small. Even more concerning is that regulators are now allowing leveraged single security ETFs, which further exacerbates the issue.' On Monday, the head of South Korea's market regulator indicated that the government was too hasty in approving leveraged funds linked to some well-known Korean chip stocks, which were launched last month and have intensified market volatility. Recently, South Korean regulators warned retail investors against using leverage in the KOSPI market, as margin debt or the amount borrowed to purchase stocks had reached a historic high in June.