KOSPI Swings by as Much as 6.75% a Day This Month, Worse Than During the Financial Crisis [Stock Market Volatility Reaches a Dangerous Level]

The KOSPI (Korea Composite Stock Price Index) has posted record intraday swings this month, surpassing levels seen during the Financial crisis and the IMF Crisis. The market has been especially volatile as concerns over a semiconductor peak, geopolitical risks and uncertainty over monetary policy have all weighed on sentiment. Much of the turbulence has also been driven by rebalancing in stock-focused leveraged exchange-traded funds (ETFs), which have attracted heavy inflows.
According to the Korea Exchange on the 19th, the KOSPI's average intraday volatility from the start of this month through the 16th stood at 6.75%. That is the highest level since the exchange began compiling statistics in 1987. It is well above the previous record of 6.11% in October 2008 during the Financial crisis, and also higher than the 5.37% recorded in December 1997 during the IMF Crisis.
Intraday volatility is calculated by dividing the difference between a day's high and low by the average of the high and low, showing the size of the day's movement relative to its midpoint. In other words, the index has moved an average of 3.37% above and below its daily midpoint this month.
The KOSPI has shown extreme volatility this year. In the past 20 years, three of the 10 months with the largest intraday volatility on record have come this year alone. Including this month, last month at 5.02% and May at 4.02% were all ranked among the top 10.
Only nine months in KOSPI history have seen intraday volatility in the double digits, and three of those occurred this year. The index surged 11.42% on March 4, 11.18% on the 23rd of last month, and 10.42% on the 13th of this month.
The KOSPI 200 Volatility Index (VKOSPI), often called Korea's fear gauge, remained elevated at 87.14 on the 16th. It closed at 96.94 on the 29th of last month, the highest level since the Korea Exchange began officially publishing the index on April 13, 2009.
VKOSPI is an indicator of expected future volatility. It is derived from information embedded in options prices and reflects investors' expectations for market volatility over the next 30 days. The index usually rises when the KOSPI falls sharply, but when it climbs during a rally, it is generally interpreted as a sign that short-term overheating is fueling investor anxiety.
Brokerage analysts say global semiconductor companies are posting strong earnings, but even minor noise is shaking investor sentiment. They also point to single-stock leveraged ETFs as an additional source of volatility. Lee Jae-won, an analyst at Yuanta Securities Korea, said, "Recently, investors have been quick to panic and sell at the slightest sign of a reason." He added, "Volatility from leveraged ETFs and the absence of a dominant net buyer pushed the index down to valuations below those seen during the Financial crisis."
Some analysts also expect volatility to ease gradually as the recent sharp selloff has already brought about a correction. Seo Jeong-hoon, an analyst at Samsung Securities, said, "Since the index has fallen by more than 20% since mid-last month, volatility driven by concentration has already been absorbed to some extent." He added, "Given that earnings estimates remain solid, it is reasonable to view the recent decline as a correction rather than a change in earnings expectations. Once the overheating eases, a rebound can be expected." He went on to say, "Interpreting the unwinding of profit-taking as a sign that the industry has turned downward is clearly premature. Even during periods of extreme stock price volatility, upward revisions to earnings estimates show that earnings visibility and reliability are high, which means investors should focus on fundamentals."
jisseo@fnnews.com Seo Min-ji Reporter