Kospi Volatility Cools, but Thin Trading Keeps 7,000 Elusive
Summary
- After regulators tightened rules on single-stock leverage, the Kospi’s volatility eased, but the market’s demand momentum to break above 7,000 also weakened.
- The Kospi’s average daily trading volume, trading value, and turnover ratio fell to their lowest levels this year, signaling weaker investor participation.
- Brokerages said the Kospi could remain range-bound around 7,000 as there is no new buying force to replace funds that had gone into single-stock leverage products, while corporate earnings growth may slow next year.
Forecast Trend Report by Period
The Kospi, after swinging wildly last month, has entered a calmer phase following tighter curbs on single-stock leverage products. Volatility has dropped quickly, but trading volume and value have also fallen, weakening the demand needed to push the benchmark convincingly above 7,000.
According to the Korea Exchange, sidecars were triggered five times on the Kospi market from the start of August through Aug. 28. That was about one-third of the 15 activations recorded in July. It also marked a sharp easing from June and July combined, when sidecars were triggered 25 times, including 10 in June and 15 in July. Circuit breakers, which were activated four times in July, were not triggered at all in August.
The index’s daily swings have narrowed as well. In July, the Kospi moved more than 3% on 14 of 22 trading days, or 64%. In August, that fell to eight of 19 sessions, or 42%. The number of days with moves of more than 5%, either up or down, dropped to three from 10 over the same period.
The VKOSPI, the Kospi 200 volatility index that measures market anxiety, has also stabilized quickly. It stood at 50.08 on Aug. 28. The gauge had surged as high as 97.99 intraday at the end of June and was still at 86.18 on July 30, before falling more than 40% over the next 20 trading days. It has retreated to the 50 level on a closing basis for the first time in about four months. The decline appears to reflect tighter rules on high-risk single-stock leverage products tied to large-cap stocks such as Samsung Electronics and SK Hynix. Financial authorities raised the minimum deposit requirement for those products to 30 million won from 10 million won.
The problem is that calmer volatility has coincided with weaker trading activity. The Kospi’s average daily trading volume in August fell to 321.79 million shares, while average daily trading value slid to 25.7568 trillion won, both the lowest this year. The average daily turnover ratio, which shows how frequently listed shares change hands, also dropped to 0.54%. That compared with 0.82% in June and 0.72% in July, highlighting a clear pullback in investor participation.
The Kospi climbed as high as 9,385 intraday in June, then tumbled to 5,262 at the end of July before rebounding. Even so, it has yet to break clearly above 7,000. The index rose to 7,216 intraday on Aug. 18, but failed to sustain the advance and has since moved in the upper-6,000 range. Part of the drag has come from retail investors whose funds were tied up after losses during the selloff, along with slower inflows of fresh money.
Brokerages say the benchmark will struggle to revisit its previous high in the near term unless a new source of buying emerges to replace funds that had flowed into single-stock leverage products. With trading activity shrinking, the market’s demand base has weakened, leaving the Kospi more likely to go through a period of consolidation before attempting a gradual rebound.
Another overhang is the prospect of slower corporate earnings growth next year. If expectations for profit improvement also fade, the Kospi could remain stuck in a trading range around 7,000 for a prolonged period.
