KOSPI Falls 6% in a Day After a 6% Surge; Brokerage Houses Say Leveraged Investing Should Be Cut First

[Financial News] Volatility in the domestic stock market has reached an extreme, with both buy-side and sell-side sidecars being triggered on consecutive days. Brokerage houses said corporate earnings and the semiconductor outlook have not changed enough to justify the sharp swings. Rather than trying to predict the direction, they advised focusing on volatility management and, in particular, reducing leveraged investing for now.
As of 9:44 a.m. on the 16th, the KOSPI was trading at 6,843.45, down 440.96 points, or 6.05%, from the previous session. At 9:10 a.m., the Korea Exchange triggered a temporary suspension of program sell orders, known as a sell-side sidecar, on the Korea Exchange Main Board.
The previous day, the KOSPI surged 6.24% as U.S. inflation data came in below market expectations, easing concerns over further rate hikes, while foreign investors poured in with bargain buying. During the session, a buy-side sidecar was also triggered to temporarily suspend program buy orders. Investor sentiment was further lifted by the government's call for measures on single-stock leveraged exchange-traded funds (leveraged ETFs).
But the mood flipped completely in just one day. The KOSPI plunged more than 5% again, and a sell-side sidecar was triggered to temporarily suspend program sell orders. With sharp gains and losses repeating on a daily basis over the past few days, market volatility has expanded to extreme levels.
Brokerage houses are broadly saying that investment strategies should assume continued volatility for the time being.
Lee Jae-won, a researcher at Yuanta Securities Korea Co., Ltd., said, "The market recently fell to valuation levels below those seen during the financial crisis, driven by volatility from single-stock leveraged ETFs and the absence of a clear net buyer." He added, "Semiconductor demand and supply, as well as the direction of corporate earnings, have not changed enough to justify this latest drop."
He continued, "This does not mean we should ignore the concerns in the market, but if stock prices have collapsed without any change in earnings outlook, this is the time to verify the factors at hand and avoid panic selling."
Still, he urged caution on investment strategy. Lee emphasized, "In a period of rising volatility, leveraged investing should be steadily reduced."
Meanwhile, inflation data released this week came in better than expected, easing some of the pressure from interest-rate concerns. However, upcoming earnings announcements from Google Experience Center, SK hynix, and major hyperscalers, along with guidance on artificial intelligence (AI) capital expenditures, are seen as key factors that will determine the market's direction.
dschoi@fnnews.com Choi Du-seon Reporter