Global investment bank (IB) Goldman Sachs pointed to single-stock leveraged exchange-traded funds (ETFs) as a main cause of the sharp drop in the KOSPI. On talk in some corners of the market that the semiconductor cycle has peaked, it said that is premature and assessed the latest pullback as a liquidity-driven supply-and-demand shock.
On the 14th, Goldman Sachs said in a report titled "KOSPI tests key technical support levels" that "the rapid deleveraging (forced selling) of newly launched single-stock leveraged ETFs amplified intraday volatility."
According to Goldman Sachs, some 2x leveraged ETFs with Samsung Electronics and SK hynix as underlying assets fell more than 30% in a single day, prompting managers to sell additional underlying shares to meet target leverage ratios. It said this process triggered a vicious cycle in which falling prices led to more selling, expanding volatility.
Goldman Sachs estimated that 62% of net selling by domestic institutions came from ETF liquidations. In the stock market the previous day, foreigners and institutions were net sellers of $1.13 billion and $1.5 billion, respectively. It noted that most of the foreign net selling came from passive funds such as program trading, totaling $1.18 billion.
However, block deals (off-hours bulk trades) by institutional investors were limited relative to the index's decline, and it assessed that selective selling appeared only among some trend-following hedge funds.
It drew a line against the view that the semiconductor cycle has structurally peaked. Although Samsung Electronics and SK hynix shares have plunged recently, earnings forecasts have not been revised downward, and with supply shortages, there is a possibility that production capacity (CAPA) expansions will be delayed until the second half of 2028, so it assessed the industry's fundamentals as still solid. It also diagnosed the latest correction as driven more by liquidity-related position unwinding than by deteriorating fundamentals.
Goldman Sachs cited 6,800 on the KOSPI as the most important technical support. If 6,800 breaks, it projected the next support at 6,500, about 4.5% below the previous close. If that, too, is lost, it left open the possibility of an additional drop to the 6,100–6,000 range. Goldman Sachs said, "Given that the KOSPI's daily trading range has far exceeded its typical standard deviation recently, the 6,100–6,000 range could act as a stronger support."
Goldman Sachs said, "Amid extreme volatility, investors should selectively buy names in memory semiconductors and technology with high conviction where valuations have compressed significantly."