Bloomberg said volatility in the Korean stock market may have entered a calming phase as leveraged (borrowed) positions were reduced and regulators tightened rules.
According to Bloomberg on the 9th, the KOSPI 200 Volatility Index (VKOSPI), which reflects risk sentiment in the domestic market, spiked intraday to 97.99 on June 29, setting a record high since the 2008 global financial crisis. The index stayed above 90 through the end of last month, keeping an uneasy trend, but has fallen into the mid-70s this month.
Bloomberg cited a decline in margin loan balances due to forced selling and the financial authorities' tighter rules on leveraged exchange-traded funds (ETFs) as key reasons for the reduced market volatility.
As a result, as trading volumes and asset size of financial products linked to the leading semiconductor stock Samsung Electronics(005930), SK hynix(000660), fell across the board, much of the leverage-driven overheating that had fueled market anxiety has eased, according to assessments.
Bloomberg also noted that the KOSPI's 12-month forward price-earnings ratio (PER) fell to 5.1 times, drawing close to an all-time low. After the recent wave of selling, key valuation metrics suggest Korean stocks have entered an excessively undervalued zone.
However, it said global asset managers still are not rushing to return to the Korean market.
Bloomberg said, "Even though volatility is lower from the peak, it remains elevated, and global investors, while acknowledging the historical undervaluation and solid earnings outlook, are weighing the risk of further sharp swings."
Templeton Global Investments fund manager Yiping Liao also said, "It is clear that the share prices of Samsung Electronics and SK hynix are inexpensive and their earnings outlooks are favorable," but added, "Given the extreme market volatility seen so far, investors can't help but take a cautious stance in the near term."