WSJ: "Korean Stocks Face Foreign Exodus and Leveraged Bets... Fears of Retail Losses"

The Wall Street Journal (WSJ) has pointed out the dangers of the Korean stock market, which has been the most volatile in the world over the past year. It warned that individual investors could suffer losses as foreign capital flees the country and leveraged investing increases.

Analysis suggests that index fluctuations are largely dictated by specific large-cap stocks, such as Samsung Electronics and SK Hynix. Leveraged products, which force buy-sell transactions in a fluctuating market, are interpreted as amplifying this volatility. South Korea's central bank and financial authorities are also considering measures to curb speculation on high-risk leveraged products.

Net foreign outflows have accelerated, exceeding $100 billion in the first half of this year alone. The amount that exited in just one month reached $30 billion in June. Max Bios, founder of Arkevium Capital, pointed to the growing number of investors betting on volatility itself, stating, "I have rarely seen such a distinct market split."

Regarding the selling by foreigners, some analysis suggests it is a mechanical weight adjustment rather than a deterioration of fundamentals. Chetan Seth, Nomura’s Asia-Pacific equity strategist, said, "It doesn't seem like investors are viewing Korea negatively," diagnosing that the situation is one where global fund managers have no choice but to reduce their weight to stay within risk limits due to the surge in Korean stock prices.

Goldman Sachs has maintained its bullish view on Korean stocks, recently raising its 12-month KOSPI target to 1,200, highlighting a divergence in market perspectives regarding the causes of the selling.