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South Korea volatility cools as leveraged trades and margin shrink
Korea’s share volatility gauge fell to a two-month low after forced liquidations reduced margin debt, and trading in some chip-linked leveraged ETFs dropped under tighter rules.
South Korea’s stock-market turmoil showed signs of easing after a historic selloff flushed out leveraged positions and regulatory curbs that had intensified swings in local equities, LiveMint Markets reported. An index measuring volatility in Korean shares fell to a two-month low last week, down from a record high in June.
The stabilization followed forced liquidations that helped reduce outstanding margin debt, while tighter rules on leveraged exchange-traded funds also curtailed trading and assets in products linked to Samsung Electronics and SK Hynix. Morgan Stanley estimated the deleveraging process is more than half over.
Despite the improvement, overseas investors are not rushing back in, with volatility still elevated. The Kospi Index fell almost 40% from its June peak, and global funds have sold more than $100 billion of shares this year, leaving emerging-market funds underweight on the country.
Authorities took steps to curb demand for leveraged products as whipsaw trading accelerated, including a higher cash deposit requirement for single-stock leveraged ETFs that began July 31 and reduced volumes and assets for funds tied to Samsung and SK Hynix. The volatility gauge hit a record 96.9 in June, and the exchange’s 20-minute trading halt triggered by an 8% market drop was activated a record four times last month.
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