Foreign investors are returning to South Korean equities after July’s sharp market correction, with some institutions saying the sell-off driven by leveraged trading may be nearing its end. According to BlockBeats on Aug. 3, overseas funds have started covering short positions and rebuilding exposure to Korean chip stocks.
South Korean stocks rebounded sharply on Friday. Foreign investors bought about KRW 7.2 trillion, or roughly $5 billion, in local equities in a single day, ending a year-to-date streak of net selling and setting a record for the largest one-day net purchase.
Buying returns to Samsung Electronics and SK Hynix
The report said retail investors in South Korea took heavy losses after the market fell about 40% from its June peak.
JPMorgan data showed that assets in leveraged ETFs tied to Samsung Electronics and SK Hynix dropped from about $50 billion in late June to around $17 billion last week. Analysts said the unwind in leveraged ETFs and hedge fund deleveraging is largely complete, and that the earlier sharp decline in Korean stocks was driven more by forced liquidation than by weakening corporate fundamentals.
Investors describe the drop as a leverage-driven event
Steve Lawrence, chief investment officer at Balfour Capital Group, said the adjustment was a “leverage event,” not an earnings problem. He said Samsung Electronics and SK Hynix still stand to benefit from a recovery in the memory chip cycle and rising investment in AI infrastructure, and that the share-price decline has created a valuation opportunity.
JPMorgan’s analysts said deleveraging by Korean hedge funds has reached about 90%, bringing positioning back toward healthier levels. Data also showed that average short interest in the Korean market fell from a recent peak of about 5.3% to 4.3%.
Volatility has not faded
Market risk has not fully cleared. The KOSPI posted a record 17.9% gain on Friday, then fell nearly 5% on Monday, a sign that volatility remains intense.
South Korea’s government has also come under criticism after single-stock leveraged ETFs led to heavy retail losses. Authorities have since begun restricting high-leverage products.