After the United States and Israel bombed Iran on the 28th of last month, Korea's stock market surged and plunged over four days (the 3rd to the 6th), triggering the volatility interruption mechanism (VI) more than 3,000 times on the KOSPI alone. A VI is a "cooling mechanism" under which, when an individual stock's price spikes or plunges, single-price auctions are conducted for two minutes.
As stock prices swung sharply, individual investors' "short-term trading" also surged. With trading volume increasing, the average daily turnover of listed shares rose sharply.
According to the Korea Exchange (KRX) on the 8th, there were 3,314 VIs triggered over the past four days in the KOSPI market (including stocks, beneficiary certificates, exchange-traded funds, and exchange-traded notes). That works out to an average of 828.5 VIs per day. Compared with the average daily VI counts of 134.3 in January and 183.4 in February, that is about four to six times higher.
More than half of the VI triggers (2,172 cases, 65.54%) occurred in ETF and ETN products. The product with the most VIs was "N2 monthly leveraged defense industry Top5 ETN," which saw 83 VIs during the period. The ETN tracks the "iSelect defense industry Top5 TR monthly leveraged index" at two times leverage.
As geopolitical tensions in the Middle East intensified, defense stocks surged in Korea's market, and speculative money appears to have flocked to the heightened volatility in related names.
Alongside VIs, sharp swings in futures prices triggered sidecars, which temporarily suspend the effectiveness of program buy and sell quotes, and circuit breakers, which halt stock trading for 20 minutes when prices surge or plunge.
Over the four days, one buy sidecar and two sell sidecars were triggered on KOSPI 200 futures. In the KOSDAQ market, buy and sell sidecars were triggered twice and once, respectively.
On the 4th, when Korea's stock indexes plunged, a level-1 circuit breaker was triggered once each on the KOSPI and KOSDAQ markets.
On the 3rd, immediately after the United States and Israel bombed Iran and war broke out, the KOSPI index plunged 7%, followed by a 12% drop on the 4th, the largest decline on record. On the next day, the 5th, the index soared 9.6%, the biggest gain since the 2008 global financial crisis.
The "debt-fueled investing" craze also intensified. Balances in overdraft accounts (revolving credit lines) at commercial banks are swelling by hundreds of billions of won per day, and trillions of won are flowing out of deposits. A significant portion of this money is estimated to be heading into the stock market.
After topping 4,000 points for the first time ever last year, the KOSPI index surged past 5,000 and 6,000 points this year in one go. Individual investors who had missed buying stocks during the market's unusual strength appear to have piled in when the index plunged due to the Iran crisis.
As the market rode a roller coaster, "changing hands" among investors also surged. With money chasing short-term gains flowing in, stock turnover rose sharply.
Over the past four days, the average daily turnover of listed shares in the KOSPI market (trading volume during the period divided by the number of listed shares) was 2.38%. That was a sharp increase from last month's KOSPI average daily listed-share turnover of 1.66%.
In particular, as international oil prices jumped amid the Middle East crisis, refining stocks drew strong interest. The stock with the highest turnover over the four days was Hung-gu Oil, at 471%. The KIM ANKOR Oilfield Overseas Resources Development Fund's turnover was also 345%.
Turnover was also high for other small and mid-size refining stocks such as Korea Petroleum (206%) and Kukdong Oil & Chemicals (171%).
Among natural gas-related stocks, GSE (241%) and Daesung Energy (120%), as well as shipping names Heung-A Shipping (194%) and STX Green Logis (178%), also saw active "changing of hands."