Robeco Asset Management analyzed that despite the recent high volatility in the Korean stock market, the fundamentals of corporations and the market's appeal remain intact.
On the 13th, Robeco Asset Management assessed that the recent surge in volatility in the Korean stock market stemmed not only from geopolitical risks due to the Middle East war, but also largely from mechanical selling triggered during the unwinding of leveraged positions by individual investors.
In fact, after the KOSDAQ index plunged about 18% at the end of last month, it rebounded to a level that was about 5% down from the start of the month as of the 10th.
In the past, there were cases in which volatility increased when selling emerged after leveraged investing continued in a bull market. During last year's upturn, individual investors' margin balances expanded to 3.28 trillion won, and the amount outstanding grew to the 1 trillion won range.
Afterward, as stock prices turned downward, automatic margin calls (additional collateral requirements) were triggered in leveraged trades, and the resulting forced liquidations followed in succession, leading to indiscriminate selling across the market.
Jan de Bruijn, portfolio manager for emerging market equities at Robeco Asset Management, said, "This market decline was also the result of leverage mechanically amplifying losses on top of sentiment weakening due to fear."
Robeco Asset Management projected that indiscriminate forced liquidations will ease going forward. This is because institutional buying has recently resumed, and the government's $68 billion (about 101.63 trillion won) market stabilization fund initiative could help steady the market.
Robeco Asset Management also viewed the domestic market as still highly attractive for investment when considering the fundamentals and valuation (corporate value) of Korea's major corporations.
For major large caps such as semiconductors, automobiles, and electric-vehicle batteries, despite the recent share price declines, there has been little change in corporations' fundamentals, so from a long-term investment perspective, risk-adjusted expected returns have actually improved. As a result, investors seeking bargain-hunting opportunities are shifting their attention to blue-chip names.
Robeco Asset Management said, "With Korea's value-up program, the Korea discount (undervaluation of the Korean stock market) is being alleviated again across key valuation indicators such as price-earnings ratio (PER), price-to-book ratio (PBR), and cash flow."
It added, "The fact that Korea's major corporations play a pivotal role in the global artificial intelligence (AI) industry will also act as a positive factor."