Korean Chip Stock Swings Jolt Japan Market as Nikkei Volatility Tops 2% for Third Month

Wild swings in South Korean chip stocks are rippling through Japan’s equity market, the Nihon Keizai Shimbun reported. Trading in leveraged exchange-traded funds that track twice the daily move of Samsung Electronics Co. and SK Hynix Inc. has picked up, amplifying swings in Japanese semiconductor shares such as Kioxia Holdings Corp., the newspaper said.

The Nikkei 225 Stock Average’s average intraday volatility was 2.5% in July, according to the July 28 report. The measure is calculated by dividing the gap between the session high and low by the previous trading day’s close. That followed 2.6% in June. It is the first time intraday volatility in Japan’s stock market has exceeded 2% for three straight months since an eight-month stretch from September 2008 to April 2009, immediately after the global financial crisis.

Nikkei said moves in South Korean semiconductor shares are a key driver of the higher volatility in Japan. South Korea and Japan are in the same time zone, and their stock market trading hours overlap. More recently, trading has increased in single-stock leveraged ETFs that track twice the daily gain or loss of Samsung Electronics and SK Hynix, making Korean chip shares even more volatile.

In Japan, artificial intelligence and semiconductor-related stocks such as Kioxia have been especially sensitive to moves in Samsung Electronics and SK Hynix. On July 27, the Kospi and the Nikkei turned lower at nearly the same time.

Volatility in Japan’s stock market could climb further with leveraged ETFs linked to Kioxia preparing to list in the US. Bloomberg has reported that at least nine ETFs designed to deliver twice Kioxia’s daily return, or twice the inverse of that return, are awaiting approval. One product from Tuttle Capital Management could list as early as August. Chief Executive Officer Matthew Tuttle said interest is strong not only among US investors but also among South Korean investors, adding that money from South Korea accounts for about one-third of assets under management.

Kioxia shares climbed as high as 112,700 yen in Tokyo trading in early June, making it Japan’s largest company by market value. The stock fell to 44,550 yen on July 28 as concerns grew over excessive investment in artificial intelligence. The shares have lost about half their value from the peak in less than two months.

A rise in short-term trading by Japanese retail investors is also fueling volatility. Margin-buying balances, which reflect purchases made with borrowed money from brokerages, have swelled past 6 trillion yen, near a record high.

Higher trading by overseas investors in Japanese stocks is also contributing to the swings. Foreign investors once focused mainly on stock index futures, but have been shifting into cash trading in individual shares, magnifying moves in specific stocks, the report said.

Choi Man-su, Tokyo correspondent, Korea Economic Daily bebop@hankyung.com