Leverage Curbs Cool Korea Volatility as Single-Stock Trades Shrink to 845.2 Billion Won From Nearly 12.4 Trillion Won

Volatility in South Korea’s stock market is showing signs of easing after regulators imposed curbs on single-stock leverage and inverse products.

The Kospi 200 Volatility Index, or VKOSPI, often called Korea’s version of the fear gauge, fell to its lowest level in two and a half months seven trading days after the supplementary measures took effect.

The Korea Exchange said VKOSPI stood at 69.88 as of 1:45 p.m. on August 10, down 5.71 points, or 7.55%, from the previous session.

It fell as low as 69.87 during the session, marking the first intraday drop below 70 since May 28.

Compared with 86.18 on July 30, before the measures took effect, the index has fallen 16.30 points, or 18.91%, in seven trading days. It is down 23.39 points, or 25.08%, from its intraday high of 93.27 on July 29.

VKOSPI was in the upper 20s at the start of the year before surging alongside the Kospi rally.

The climb accelerated in late May, when the Kospi closed above 8,000. On June 29, VKOSPI rose as high as 97.99 intraday, its highest level since the 2008 financial crisis.

It stayed above 80 even as the benchmark index fell nearly 40% from its peak during a correction in semiconductor shares.

Brokerages say market volatility was amplified by heavy concentration in Samsung Electronics Co. and SK Hynix Inc., which account for more than half of Kospi market capitalization, and by rapid growth in single-stock leveraged products tied to those shares.

In response, financial authorities introduced supplementary measures on July 31. They raised the minimum deposit requirement to 30 million won from 10 million won and changed the rules so sale proceeds would count as deposits only on the actual settlement date, or T+2.

Trading in the market dropped sharply after the measures took effect.

The value of single-stock leveraged trading fell to 845.2 billion won on August 7 from 12.4485 trillion won on July 30.

Over the same period, the Kospi and Kosdaq indexes rebounded 10.52% and 20.54%, respectively.

Park Sang-kyung, Hankyung.com reporter highseoul@hankyung.com