The Wall Street Journal issued a warning that the Korean stock market could end like the drama 'Squid Game,' suggesting that most individual investors may be left with losses after a spectacular rally. According to WSJ's Markets A.M. newsletter, the Korean stock market has risen 165% over the past year, posting the highest returns among major global markets, but the process has been marked by extreme volatility. The warning comes as Korean authorities, including the central bank, have expressed concerns and are exploring measures to curb speculation driven by single-stock leveraged products that require investors to pass tests due to their high risk.
WSJ Warns Korean Stocks Risk Squid Game Outcome
WSJ used the expression 'World's Hottest Market Risks Becoming a Squid Game' to describe the KOSPI's daily fluctuations. The publication warned that the market resembles a 'casino' where most losses could be borne by domestic individual investors once the game ends. The comparison to the popular drama highlights the risk that a majority of participants could face significant losses despite the market's overall gains.
Korean Stock Market Records Highest VI Triggers in First Half
The KOSPI market recorded 29,357 Volatility Interruption (VI) triggers in the first half, setting a new record for a half-year period. The previous record was 24,401 triggers in the first half of 2020 during the COVID-19 market crash. According to the Korea Exchange, the KOSPI's average intraday volatility rate in the first half was 3.30%, the second highest on record after the first half of 1998 (3.51%). Intraday volatility rate measures the difference between the day's high and low divided by the average, with higher values indicating more severe intraday swings.
Individual Investors Purchase 1.6 Trillion Won in Leveraged ETFs
According to Korea Exchange investor trading data, individual investors made net purchases of 1.6135 trillion won in 10 Samsung Electronics and SK Hynix physical single-stock leveraged ETFs over four trading days from the 1st to the 6th. This figure excludes futures-type single-stock leveraged ETFs. WSJ characterized this buying frenzy as casino-like behavior, warning that losses could predominantly fall on domestic individual investors.
Foreign Investors Withdraw Over $100 Billion in First Half
According to WSJ, foreign investor net outflows from the Korean stock market exceeded $100 billion (approximately 153 trillion won) in the first half, with $30 billion (approximately 45.9 trillion won) withdrawn in June alone. Interpretations of this selloff diverge. Chetan Seth, Asia-Pacific equity strategist at Nomura, told CNBC that the selling is not due to deteriorating fundamentals of the Korean economy but rather temporary and mechanical adjustments following a surge in index weighting. However, Oh Jae-young, a researcher at KB Securities, stated that if the foreign ownership ratio drops from the current 39.5% to 35%—within the historical range of 29-45% excluding the 2009 Lehman crisis—approximately 260 trillion won in additional selling is possible. Oh added that as the market rises, foreign investors' rebalancing demand increases, and the potential remaining sellable volume is estimated to exceed the amount sold to date.
FAQ
What did the Wall Street Journal warn about the Korean stock market?
The Wall Street Journal warned that the Korean stock market could end like the drama 'Squid Game,' meaning most individual investors may be left with losses after the market's spectacular rally. The market has risen 165% over the past year but has been marked by extreme volatility.
How many Volatility Interruption triggers occurred in the Korean stock market in the first half?
The KOSPI market recorded 29,357 Volatility Interruption (VI) triggers in the first half, setting a new record for a half-year period. The previous record was 24,401 triggers in the first half of 2020 during the COVID-19 market crash.
How much did foreign investors withdraw from the Korean stock market in the first half?
According to the Wall Street Journal, foreign investor net outflows from the Korean stock market exceeded $100 billion (approximately 153 trillion won) in the first half, with $30 billion (approximately 45.9 trillion won) withdrawn in June alone.
