How Did This Round of Deleveraging in the Korean Stock Market Occur?
This article details the timeline and mechanisms behind the deleveraging event in the South Korean stock market, focusing on the KOSPI index from late June to mid-July.
The core trigger was the market's structure, heavily concentrated in Samsung Electronics and SK Hynix, which comprised over half of the KOSPI. The situation was amplified by the May 27th launch of single-stock double-leveraged ETFs on these two companies, which attracted massive retail investment and concentrated risk.
The process unfolded in eight stages:
1. Initial price collapse on June 23rd after regulatory warnings, but without significant debt reduction.
2. A rebound from June 24-25 fueled by retail buying and ETF rebalancing, which actually increased leverage.
3. Foreign and institutional investors selling from June 26-30, with domestic retail investors becoming the marginal buyers, transferring risk to household balance sheets.
4. A shift in global semiconductor sentiment from July 1-3, causing leveraged ETFs to systematically sell during declines.
5. The market failing to rally on strong earnings (July 6-8), signaling a turn from technical correction to concerns over peak profitability.
6. A rise in forced liquidations and the cross-listing of SK Hynix ADRs, spreading leverage risks to US and Hong Kong markets (July 9-10).
7. A cascade of synchronized selling from various players on July 13th, followed by a mechanical, ETF-driven rebound.
8. Institutionalization of deleveraging on July 16th, marked by an interest rate hike and new regulatory restrictions on single-stock leveraged products.
The author concludes this was not a simple semiconductor correction but a negative feedback loop involving foreign capital rebalancing, retail margin trading, daily ETF rebalancing, forced liquidations, shifting industry expectations, and tightening monetary and regulatory policy. Leveraged ETFs acted as a critical amplifier, not the initial spark. The price decline (-25%) far exceeded the reduction in margin debt (-11%), indicating the deleveraging was primarily expressed through asset prices rather than immediate balance sheet repair.
marsbit07/19 02:04
