Kospi Volatility Shock Deepens as Sidecars Trigger for a Third Straight Day

South Korea’s stock market is enduring its most violent swings since the 2008 global financial crisis. Brokerages still see room for further gains in the second half, citing improving earnings in artificial intelligence and semiconductors and ample liquidity. But volatility is intensifying. Buying driven by hopes of a continued rally is colliding with panic selling, pushing the Kospi into an unprecedented whipsaw.

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According to the Korea Exchange, the Kospi fell 4.52% from the previous session to 7,730.82 on June 10. Institutional investors were net sellers of 2.2673 trillion won, while foreign investors sold a net 2.7717 trillion won. Retail investors alone bought a net 4.8612 trillion won, helping cushion the decline.

The index opened in the 7,900 range and extended its losses through the session, briefly retreating into the 7,500 range in the afternoon. A sell-side sidecar, which temporarily halts the validity of program sell orders, was triggered at about 1:16 p.m. after the Kospi 200 dropped more than 5%.

The benchmark market has seen 24 sidecars this year through June 10, with 12 buy-side and 12 sell-side triggers. That is already close to the 26 recorded in all of 2008 during the global financial crisis. Sidecars have been activated roughly once every four to five trading days.

Circuit breakers have also been triggered with unusual frequency. The Kospi market hit them three times this year, on March 4, March 9 and June 8. A circuit breaker halts trading across the entire market when the index tumbles, making it a stronger warning signal than a sidecar, which only limits program trading quotes.

After each of those three circuit breakers, the Kospi rebounded in the next session. The benchmark slumped more than 12% on March 4, then bounced more than 9% the following trading day. A few days later, however, it plunged again on March 9, triggering a second circuit breaker.

The pattern has repeated this month. On June 8, the Kospi sank more than 8% as a selloff in US semiconductor stocks, pressure from interest rates and foreign selling hit at once. That set off the year’s third circuit breaker, and the Kosdaq market also triggered one. On June 9, the Kospi surged more than 8% and reclaimed the 8,000 level, prompting a buy-side sidecar. A sell-side sidecar followed again on June 10.

The options market is still signaling deep anxiety. The Kospi 200 volatility index, or VKOSPI, often referred to as Korea’s version of the fear gauge because it measures expected volatility implied by option prices, jumped to 91.23 the previous day. That marked the first time the index closed above 90 since its official launch in 2009.

The reading topped this year’s previous high of 83.58 set on March 5, shortly after war broke out with Iran following attacks by the US and Israel. It also surpassed levels seen during the 2008 global financial crisis, when the index reached 89.30, and the 2020 Covid-19 pandemic, when it hovered around 60.

Like the VIX on Wall Street, VKOSPI reflects investor anxiety in the Korean stock market. Based on Kospi 200 option prices, it measures implied volatility, or how much investors expect the index to swing over the next 30 days. The higher the reading, the more difficult it is for market participants to predict the market’s direction and the more extreme the panic. VKOSPI still closed at an elevated 88.35 on June 10.

Brokerages broadly still expect further gains for the Kospi in the second half. Improving earnings in semiconductors and the AI value chain, stronger shareholder returns, inflows from household funds and a narrowing Korea discount are among the factors cited for a rerating. Still, the repeated triggering of circuit breakers and sidecars shows the path higher may not be smooth.

Interest rates, inflation, the won exchange rate, foreign investor flows and the semiconductor earnings cycle will be key variables in determining the index’s direction. South Korean stocks may continue to post sharp short-term swings depending on US consumer price data, Treasury yields, crude oil prices, and moves in US technology and semiconductor shares.

Han Ji-young, an analyst at Kiwoom Securities, said moves of more than 8% over the past two trading days were unusual. He said actual volatility had completely overtaken expected future volatility, a rare case in the history of the Korean stock market. Even the derivatives market, where VKOSPI is calculated and traded, had already priced in extreme volatility, he added, but recent index moves had become so disorderly that actual stock swings were outpacing those expectations.

Another variable is SpaceX, which is set to list on the Nasdaq on June 12. Some analysts say demand for funds related to what is projected to be the largest initial public offering ever could weigh on equities. Industry participants estimate SpaceX’s valuation at around $2 trillion.

Lee Kyung-min, an analyst at Daishin Securities, said a SpaceX listing could act as a black hole for global liquidity. That could accelerate outflows from the Kospi, which has sharply outperformed global equity markets.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com