Bull Theory analysts said something highly unusual is happening in the South Korean stock market. According to the service, the KOSPI index plunged more than 8% today, triggering the fifth trading halt this month.
Bull Theory noted that more than 400 trillion won, or about $360 billion, was wiped from the market, while shares of Samsung and SK Hynix each fell by around 9%. The latest sell-off followed a series of sharp moves. On June 8, the index dropped 8% in the first three minutes of trading. On June 22–23, the decline reached 10%, marking the second-worst day in KOSPI history, amid a proposal to tax unrealized gains.
Five Reasons Behind The Extreme Volatility
Bull Theory identified five factors driving the market turmoil.
The first is market structure. Trading is largely driven by retail investors, known in South Korea as “ants,” rather than institutional investors. These investors often follow a rapid in-and-out approach, turning every dip into a sharper sell-off and every rebound into a fast rally.
The second factor is concentration. Samsung and SK Hynix together account for 45%-50% of the entire KOSPI index. By comparison, Nvidia and Apple together make up only around 14% of the S&P 500. In practice, two stocks are driving the benchmark index of an entire country.
The third factor is record margin debt, which has reached 32.67 trillion won, or about $22.4 billion, up 25% year-over-year. Leveraged ETFs tied to individual Samsung and SK Hynix shares, approved in May, have amplified daily moves. As a result, a 9% drop can turn into an 18% loss for holders, accelerating forced selling.
The fourth factor is the won. The South Korean currency is not widely held as a global reserve currency, which makes it more vulnerable when foreign investors sell local assets. The won has already fallen to a 17-year low, raising import costs and limiting the central bank’s ability to cut rates even as the stock market comes under pressure.
The fifth factor is the role of South Korea’s National Pension Service. According to Bull Theory, the fund holds assets equal to about 60% of the country’s GDP but has already exceeded its equity allocation limit. As a result, it is forced to sell into rebounds rather than buy dips. The service said the fund even sold on the day the trading halt was triggered.
Market Loses Its Stabilizer And Bullish Catalyst
Another blow came after South Korea was not added to MSCI’s watchlist for a potential upgrade to developed-market status at the end of June. According to Bull Theory, that removed one of the few catalysts that had encouraged foreign investors to tolerate the market’s volatility.
In short, the market has become retail-heavy, concentrated in two major stocks, overleveraged, exposed to currency pressure, and short of stabilizing buyers. It has also lost a major bullish catalyst. That is why, Bull Theory argued, the KOSPI is no longer moving by just 2% at a time.
According to the service, the index is now seeing swings of 8%–10% on an almost daily basis. Between crashes, the market has also staged sharp rebounds. In March, KOSPI jumped nearly 10% in a single day, immediately after a record 12% drop.
