Stock strategists at Bank of America (BofA) analyzed the recent sharp swings in the Korean stock market as a "textbook case of a bubble."

The closing prices appear on the electronic board in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul, on the afternoon of the 11th. The KOSPI index closes at 5609.95, up 77.36 points (1.40%) from the previous trading day; the KOSDAQ index ends at 1136.83, down 0.85p (0.07%); and the dollar-won exchange rate records 1466.5 won, down 2.7 won. /Courtesy of News1

On the 11th, according to MarketWatch, BofA's stock strategists pointed to the KOSPI index's recent 12% plunge followed by a 10% rebound, saying the pattern resembles the extreme market instability seen during the Asian financial crisis, the dot-com bubble, and the 2008 global financial crisis.

BofA measures bubbles using a proprietary gauge called the "Bubble Risk Indicator." The indicator consolidates an asset's return, volatility, momentum (upward driver), and vulnerability into a single figure between 0 and 1. The closer to 1, the more it signals an extreme bubble-type price move.

BofA's stock strategists said the KOSPI index's Bubble Risk Indicator is currently near an extreme reading of "1." They also saw overheated action in the options market.

They issued a negative assessment of domestic retail investors who are actively participating in leveraged and inverse exchange-traded fund (ETF) investments.

They said, "The active market participation of Korean retail investors who led the recent historic rally further supports the typical bubble environment observed on the KOSPI last week."

BofA also said that based on analysis using data before the sharp swings in oil prices occurred, the KOSPI index showed the most extreme bubble conditions among major assets. It was at an even higher level than extremely frothy gold, Brent crude, the Bloomberg Commodity Index, and silver.

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