Korea’s VKOSPI Hits Record High as Won Closes at 1,545.2 Per Dollar

South Korea’s VKOSPI volatility index, often referred to as the local fear gauge, climbed to a record high on June 29. Foreign investors extended heavy net selling on the Kospi to a seventh straight session, while the won closed in the 1,545 range against the dollar, its highest level since the global financial crisis. Investors are bracing for continued volatility as uncertainty builds around semiconductor shares that had driven the artificial intelligence rally.

VKOSPI rose as much as 5.70% from the previous session at the open, touching an intraday high of 97.99 on June 29. It later finished up 4.56% at 96.94. That closing level was well above 83.58 recorded on March 5, shortly after the outbreak of the Iran war this year. It was also the highest since Korea Exchange began officially publishing the index on April 13, 2009. Even including VKOSPI data compiled before the official launch, the June 29 close topped 89.30 reached on Oct. 29, 2008, during the global financial crisis.

VKOSPI measures investors’ expectations for future volatility implied by Kospi 200 options prices. A higher reading signals deeper market anxiety. The index is generally viewed as entering a precursor stage of systemic risk when it moves into the 50-60 range, as investors begin to lose rational judgment and rush to sell. A move into the 70-80 range is typically considered an uncontrollable panic phase in which even government stimulus fails to calm markets.

Market participants attributed the latest spike in volatility to concentrated flows into single-stock leveraged exchange-traded funds tied to Samsung Electronics Co. and SK Hynix Inc., as well as renewed noise surrounding the U.S.-Iran war. Han Ji-young, an analyst at Kiwoom Securities Co., said major stock markets including South Korea and the U.S. experienced repeated sharp swings last week as money flowed in and out of semiconductor shares, the leading sector in global markets. Noise surrounding Apple Inc. has further added to the confusion.

The concern is that hyperscalers, including Apple, may struggle to absorb rising memory prices and could scale back investment. With Samsung Electronics and SK Hynix accounting for a large share of the domestic stock market, doubts surrounding the two companies appear to have spilled over into broader market volatility.

Concerns over AI investment are also spreading. The Bank for International Settlements, often called the central bank for central banks, said in its annual economic report released a day earlier that risks including the collapse of an AI bubble pose a major threat to the global economy. The BIS highlighted the opacity of a circular financing strategy used by U.S. big tech companies and others in the AI industry to secure large investment funding.

The circular financing structure cited by the BIS refers to deals in which semiconductor manufacturers or data-center operators buy stakes in AI developers, and the AI companies in turn agree to purchase chips and computing resources for several years. The BIS said disappointment in AI-related returns could trigger sudden capital withdrawals. That could then lead to a prolonged investment slump and broader knock-on effects across financial conditions.

The exchange rate has also emerged as a key fault line for South Korea’s stock market. In Seoul trading, the won ended the daytime session at 1,545.2 per dollar as of 3:30 p.m. on June 29, up 13.2 won from the previous session. That marked its highest level since the global financial crisis. The currency had fallen 10.7 won in the prior session before reversing higher a day later, more than erasing the earlier drop.

The won has closed the daytime session in the 1,500 range for more than a month since May 15. Based on daytime closing prices, it was the highest since March 9, 2009, when it ended at 1,549.0 per dollar. The currency opened at 1,536.5 won, up 4.5 won on the day, and extended gains after trading began. It rose as high as 1,545.7 won at about 1:22 p.m. Although it briefly pared some gains with about an hour left in the session, it surged again just before the close.

The won came under further pressure as foreign investors kept selling Kospi shares on June 29. Foreigners sold about 7.7 trillion won ($5.0 billion) worth of stocks, extending net sales to a seventh consecutive trading day. Sentiment toward technology shares weakened broadly after news that ChatGPT developer OpenAI is considering delaying its initial public offering until next year. That appears to be accelerating the outflow of foreign funds from South Korea’s stock market.

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