South Korean stocks jumped, as the unwinding of leveraged bets that helped drive the benchmark nearly 30% below its peak appeared to be nearing its end.
The benchmark Kospi jumped more than 6% on Wednesday, extending its two-day gains to nearly 10%. Korea Exchange briefly halted buying of program trading, a safeguard that has become a hallmark of the $4 trillion market as its volatility surpasses even Bitcoin.
The rebound was led by SK Hynix Inc., which soared more than 9% after its American depositary receipt finished 14% higher on improved artificial-intelligence sentiment. Its proxy trade SK Square Co. also jumped while chip heavyweight Samsung Electronics Co. climbed more than 6%.
The rebound offers reprieve after weeks of selling wiped out about $1.2 trillion of market value since a June peak. The swoon was largely driven by unwinding of leveraged exchange-traded funds and shrinking retail margin loans, alongside mounting worries over the sustainability of the memory chip boom, market participants say.
About 75% of deleveraging in leveraged ETF positions appeared to be done, JPMorgan Chase & Co. Strategists including Mixo Das wrote in a report this week.
South Korean investors slashed their leveraged stock positions to the lowest level in three months as of July 16, according to the Korea Financial Investment Association. The outstanding balance of margin loans dropped to 33.4 trillion won , down 13% from its peak at the end of June.
For many investors, that is a sure sign of good news ahead. “With toxic leverage now significantly reduced, risk-reward ratios have turned considerably favorable,” said Peter Park, a Korea equity sales associate at NH Investment & Securities Co., wrote in a note.
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