Extreme volatility shakes Kospi as chipmaker ETFs spark short-term trading flood

Extreme volatility gripped the Kospi on Tuesday as investors piled into short-term trades in leveraged exchange-traded funds (ETFs) tied to chipmakers, with the benchmark index plunging from above 8,900 to 8,503.48 in just five minutes.

The benchmark index later clawed back some losses during the afternoon session, closing at 8,801.49, up 0.15 percent from the previous trading day.

Profit-taking following the market’s rapid rally and a flood of short-term trades in single-stock ETFs  amplified market swings, according to finance observers.

Large-cap stocks were equally volatile.

Samsung Electronics climbed as high as 377,000 won ($250) in premarket trading before sliding to 342,000 won during regular trading hours. LG Electronics, which had hit the daily upper limit for two consecutive sessions, surged to 467,500 won before plunging to 331,500 won in Tuesday’s session.

Retail investors likened the market’s moves not to a roller coaster but to a free fall.

Still, Kospi bellwether Samsung Electronics held up relatively well, rising to become the world’s 10th-most-valuable company by market capitalization.

According to CompaniesMarketCap, Samsung’s market value reached $1.56 trillion and surpassed  Meta Platforms, which had a market capitalization of $1.52 trillion as of 4:30 p.m. Less than a month after first crossing the $1 trillion threshold on May 6, the Korean chipmaker added more than $500 billion in market value. The gap with No. 9 Tesla also narrowed to roughly $1 billion.

Market analysts pointed to speculative trading in single-stock 2x-leveraged ETFs as a major driver of heightened volatility. The products were first launched last Wednesday.

“Retail investors' heavy concentration in leveraged products tied to certain companies is increasingly driving the direction of the market index,” Seo Sang-young, a researcher at Mirae Asset Securities, said. “The problem is that these flows are amplifying intraday volatility. As long as this trend continues, elevated volatility during trading hours is likely to persist for the time being.”

In practice, leveraged ETFs linked to Samsung Electronics and SK hynix have become favored vehicles for short-term trading.

Turnover in the Kodex Samsung Electronics single stock leveraged ETF reached 198.77 percent on Tuesday.

Turnover measures trading volume relative to total shares outstanding, with higher figures indicating more active changes in ownership. A turnover rate of nearly 200 percent means the fund's shares changed hands almost twice in a single day.

The SOL SK hynix Futures single-stock inverse 2X ETF, which allows investors to bet on declines in the stock price, posted a 475.66 percent turnover on Tuesday. On Thursday, its turnover had reached an extraordinary 2,014.31 percent.

Foreign investors’ selling also contributed to the day’s sharp swings.

Overseas investors were net sellers of about 6.59 trillion won in the benchmark Kospi, while retail investors absorbed much of the selling, recording net purchases of 6.35 trillion won.

Foreign investors have now been net sellers for 18 consecutive trading sessions since May 7. They have unloaded a cumulative 60.17 trillion won worth of shares.

The June 3 local elections added another layer of uncertainty for investors.

“A short-term correction could follow the elections as policy momentum weakens and investors move to lock in profits,” said Daishin Securities in its report.

“The market has risen so steeply that even relatively minor issues, including political uncertainty, can serve as a trigger for profit-taking,” a securities industry source said. “Large intraday swings are likely to continue for the time being.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

BY JANG SEO-YUN [lee.soojung1@joongang.co.kr]