South Korean Stock Market Stabilizes After 40% Kospi Drop

The South Korean stock market is showing signs of stabilization following a period of extreme volatility that saw the Kospi Index drop nearly 40% from its June high. The turmoil was driven by high margin debt and leveraged positions, resulting in record-high volatility in June and four separate 20-minute trading halts last month.

To curb the instability, the Government of South Korea implemented tighter regulations on leveraged exchange-traded funds, including higher cash deposit requirements that took effect on July 31. These regulatory shifts, combined with forced liquidations totaling nearly 2 trillion won across June and July, have reduced margin loans to their lowest level this year.

Despite these internal stabilization efforts, global funds continue to sell Korean equities, offloading $6.2 billion in July and $4.3 billion in August. However, some institutional perspectives remain positive. Morgan Stanley estimated that the deleveraging process is more than half complete, while Goldman Sachs Group Inc. reiterated a 12-month Kospi target of 12,000, suggesting a potential 90% upside based on underlying fundamentals.