South Korea’s stock market may have moved past its most intense period of turmoil after a historic selloff, Bloomberg reported. Forced liquidations of leveraged positions and tighter regulation have sharply reduced trading in some higher-risk products.
The country’s stock volatility index fell to a two-month low last week, retreating from the record high reached in June. Morgan Stanley estimates that more than half of the deleveraging process has been completed.
Sharp swings gripped the market
The Korea Composite Stock Price Index, or KOSPI, at one point fell nearly 40% from its June high. Global funds have sold more than $100 billion of Korean equities this year.
In June, South Korea’s stock volatility gauge climbed to a record 96.9, compared with 28.9 at the end of 2025.
The Korea Exchange’s 20-minute trading curb was triggered four times in July, the highest number on record. The mechanism is activated when the market falls 8%.
During nearly half of July’s trading sessions, the KOSPI posted a daily move of at least 5%. On July 31, it recorded a record one-day gain of 18%.
Regulators moved to curb leveraged demand
After the market’s violent swings, regulators introduced a series of measures aimed at limiting demand for leveraged products. Starting July 31, single-stock leveraged exchange-traded funds, or ETFs, became subject to higher cash margin requirements. Trading volume and assets in funds linked to Samsung Electronics and SK Hynix then declined.
About 1 trillion won, or $710 million, in retail accounts was forcibly liquidated in June. Another 993 billion won was liquidated in July. Both figures were the highest levels of the year.
Margin loan balances used to finance stock purchases fell to 27.4 trillion won as of Aug. 4, the lowest level this year.
Valuations are low, but foreign money has not returned in force
Korean equity valuations fell to depressed levels after the selloff. The KOSPI’s 12-month forward price-to-earnings ratio dropped to 5.1, the lowest on record, but overseas asset managers have yet to return on a large scale.
Foreign investors sold a record $30 billion of Korean stocks in June, followed by another $6.2 billion in July and a further $4.3 billion so far in August.
Goldman Sachs maintained its 12-month KOSPI target of 12,000, implying about 90% upside from last Friday’s close.
Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, said that if volatility declines, market fundamentals will begin to assert themselves again, and those fundamentals are attractive.