Global Market: South Korea steps up market monitoring as chip-driven volatility rattles stocks

Synopsis

South Korean economic officials will closely monitor factors causing market volatility. Sharp swings in chip shares have unsettled investors and caused market fluctuations. Increased profit-taking and global AI expectations contributed to the heightened market volatility.

South Korea's top economic policymakers agreed on Wednesday to closely monitor factors that could intensify stock market volatility, as sharp swings in semiconductor shares continued to unsettle investors, according to Reuters.

The decision came after Finance Minister Koo Yun-cheol met with the governor of the central bank and the heads of the country's financial regulators to assess recent market developments. The finance ministry, in a statement, said increased profit-taking by foreign and institutional investors, portfolio rebalancing and changing expectations surrounding the global artificial intelligence sector had contributed to heightened market volatility.

The benchmark KOSPI index tumbled as much as 4% in early trading, touching its lowest level since May 20, before staging a recovery as chipmaker stocks rebounded. By 0052 GMT, the index was trading 0.5% higher, although it remained 15.6% below the record high reached on June 22.

The market has experienced elevated volatility this week, with the KOSPI earlier triggering a circuit breaker for the sixth time this year and only the 12th occurrence in its history. The sharp fluctuations were largely driven by heavyweight semiconductor stocks, including Samsung Electronics and SK Hynix.

The finance ministry noted that the growing concentration of the stock market in semiconductor companies has become an important source of financial market volatility. It added that movements in chip stocks increasingly influence the broader equity market.

Also Read | South Korea's Kospi plunges another 4%, crashes 9% in 3 days. What's spooking investors?

South Korean regulators have also intensified their oversight of products linked to semiconductor shares. The Financial Supervisory Service said on Tuesday it would closely monitor the impact of newly launched single-stock leveraged exchange-traded funds (ETFs) tied to chipmakers and examine marketing practices by asset management firms if necessary.

The Bank of Korea had already warned on Sunday that it would coordinate with other agencies to manage risks associated with such investment products. According to Reuters, the central bank cautioned that single-stock leveraged ETFs could amplify one-sided trading, increase concentration in specific stocks and worsen market volatility.

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