Korea's economy is expected to post growth of around 3 percent and a current account surplus exceeding $250 billion this year, yet volatility in its financial markets is instead growing. As foreign investors take profits from a stock market driven solely by semiconductors, the KOSPI has swung wildly while the won and bonds continue to weaken. In particular, with capital concentrating in the stock market and single-stock leveraged exchange-traded funds (ETFs) amplifying volatility, foreign media have assessed that "Korea's market is coming to resemble 'Squid Game.'"
The KOSPI closed Friday at 7656.31, down 395.02 points, or 4.91 percent, from the previous trading day. At one point it plunged more than 8 percent, triggering a circuit breaker that halted trading for 20 minutes. It was the 11th such occurrence in history and the sixth this year.
The market decline was led by foreign investors. Overseas investors made net sales of 2.93 trillion won on the stock market that day, marking 13 consecutive trading days of selling. Foreign investors have sold approximately 171.43 trillion won on the KOSPI alone this year.
Experts agree the market's rise resulted from the "big two" of Samsung Electronics and SK hynix. What matters is that this semiconductor-driven rally is affecting the financial market as a whole. Specifically, one axis flows from "semiconductor stock surge → profit-taking by overseas investors → won weakness," while another axis spreads from "concentration of investment funds in semiconductors → rising market and lending rates → increasing delinquency rates."
Within and around the government, there is talk that rising semiconductor stock prices and leveraged ETFs are lining only the pockets of foreign investors. The won-dollar exchange rate is holding in the 1,500-won range due to their currency conversion demand. In the month after leveraged ETFs were introduced, the KOSPI moved more than 3 percent on 11 of 21 trading days.
The bond market is also on thin ice. That day, the credit spread on "AA-" rated corporate bonds—the gap between yields on three-year corporate bonds and three-year government bonds—widened to 0.692 percentage point, the largest of the year. Delinquencies among small and medium-sized enterprises are also surging amid rising rates.
Meanwhile, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol said the government is "discussing supplementary measures" regarding leveraged ETFs being cited as one cause of stock price volatility.
