South Korea’s KOSPI sinks 10.84% in worst day since 1998; regulator mulls 20% cap on single-stock leveraged
South Korea’s benchmark KOSPI index crashed 10.84%, its steepest one-day drop since 1998, as heavy selling triggered forced liquidations. Memory chip makers SK Hynix and Samsung Electronics tumbled 14.65% and 13.39%, respectively. Official data showed forced-sale volumes reached 344.2 billion won in July through July 13, with about 320,000 to 360,000 accounts fully liquidated. As of July 27, 42% of Samsung Electronics’ 872,000 retail investors and 57% of SK Hynix’s 400,000 investors were nursing losses. Credit trading balances fell to a four-month low of 32.6717 trillion won. The financial regulator plans to cap individuals’ single-stock leveraged product exposure at 20% of their total financial investments if enhanced deposit rules taking effect July 31 fail to curb speculation.
South Korean stocks were hit by heavy selling, with the KOSPI index plunging 10.84%, its largest single-day drop since 1998. Memory chip giant SK Hynix tumbled 14.65%, and Samsung Electronics slumped 13.39%. Official data disclosed earlier showed that forced liquidations in July totaled 344.2 billion won as of July 13, and roughly 320,000 to 360,000 accounts had been fully closed out by brokerages.
South Korea's financial regulators are considering tighter position controls on single-stock leveraged products. On July 28, Financial Services Commission Chairman Lee Eok-won chaired a meeting, saying that if the enhanced basic deposit requirements taking effect on July 31 fail to cool the market sufficiently, the authorities will introduce additional regulatory measures. The main plan under consideration is to limit an individual's investment in single-stock leveraged products to no more than 20% of their total financial investment products. The authorities are also studying supplementary measures, including introducing pre-trade simulation requirements for single-stock leveraged products, as well as adding periodic re-education mandates and prior investment experience thresholds. Lee also requested that asset management firms spread the rebalancing of single-stock leveraged products throughout the trading day, and called on liquidity providers to reduce unnecessary trades by voluntarily adjusting quoting units, quantities, and order frequency.
As of July 27, 42% of Samsung Electronics' 872,000 retail investors were sitting on losses, while the loss ratio among SK Hynix's 400,000 investors reached 57%. South Korea's credit trading balance has recently fallen to 32.6717 trillion won, the lowest in about four months and roughly 6 trillion won below its peak.