South Korean stocks have entered bear-market territory after a rapid correction over the past month, with the Kospi Index down 20% from its peak by technical measures. The drop has been led by steep losses in chip heavyweights SK Hynix and Samsung Electronics.
Bloomberg data cited in the report showed South Korea’s forward price-to-earnings ratio falling to 6x, a historical low. Market commentary in the report said leveraged exchange-traded funds had intensified recent swings through their trading mechanics, contributing to repeated circuit breakers in the local market.
Some foreign institutions, though, see value at these levels and say Korean equities look attractive relative to other markets.
Chip stocks lead the decline
Recent weakness in Korean equities has been tied to concerns over capital spending and stretched valuations across global semiconductor names. SK Hynix plunged 15% on the Korea Exchange in the previous session and continued to fall the next day.
Analysts at Samsung Securities said that rising volatility used to be treated as a signal of the business cycle, but should now be viewed as part of a structural shift in the stock market. SK Hynix has posted daily swings of 5% on more than 50 trading days this year, highlighting the intensity of price moves in the stock.
Valuation drops to a record low
As the broader index fell, Kospi valuations reset sharply lower. Bloomberg data showed the market’s 12-month forward P/E ratio dropping to around 6x, the lowest level on record.
Investor positioning also split. On July 13, South Korean retail investors abandoned their recent buy-the-dip approach and sold a net KRW 2 trillion, or about $1.3 billion, in stocks. Foreign institutional investors, meanwhile, turned back to buying after a period of net sales.
Strategists at JPMorgan Private Bank said current valuation levels suggest potential opportunities in South Korea compared with both emerging and developed markets.
Leveraged ETFs amplify market swings
The report linked part of the market’s repeated turbulence to strong demand for semiconductor-related leveraged ETFs. Rebalancing trades tied to those products amplified short-term volatility and pushed the number of local trading halts to a record high.
Analysts at CLSA Securities said traders had historically relied on U.S. tech indexes to gauge Korean stocks, but that South Korea has now become a barometer for the global artificial intelligence trend.
South Korea’s financial regulators have called on asset managers to strengthen risk controls for related financial products.
