From plummeting to rebounding, about 75% of leveraged ETF liquidation in Korean stocks has been completed.

```

South Korea's stock market rebounded sharply on Wednesday, as the pressure from leveraged positions that had weighed on the market for several weeks is nearing its end, bringing a turning point for the persistently sluggish market.

The benchmark Kospi index surged as much as 6.2% on Wednesday, with a two-day cumulative gain of nearly 10%. According to a report by JPMorgan strategists earlier this week, about 75% of the deleveraging process for leveraged ETF positions has been completed. On the day, a programmatic trading buy-side circuit breaker was briefly triggered on the Korea Exchange—this mechanism has become a hallmark of the $4 trillion market, whose volatility at times even surpasses that of Bitcoin.

This round of the rebound comes after a significant evaporation of market capitalization. Since the June peak, weeks of selling have wiped out about $1.2 trillion in market value from South Korean stocks, with the Kospi falling as much as 30% from its peak. Market participants said this round of decline was mainly driven by leveraged ETF liquidations, shrinking margin balances among retail investors, and concerns over the sustainability of the memory chip cycle.

Leveraged Position Liquidations Near End, Deleveraging Pressure Eases Significantly

According to the Korea Financial Investment Association, as of July 16, Korean investors’ leveraged stock holdings had fallen to a three-month low, with margin balances down to 33.4 trillion won (about $22.6 billion), a 13% decrease from the end-of-June peak.

JPMorgan strategists including Mixo Das wrote in a report this week that about 75% of the deleveraging of leveraged ETF positions has been completed. Peter Park, Vice President of Equity Sales at NH Investment & Securities, stated in a research note: “With toxic leverage greatly reduced, the risk-reward ratio has clearly improved.”

For many investors, the above data is a positive sign of market stabilization. The substantive alleviation of deleveraging pressure means that the mechanical selling forces previously dominating the market are weakening.

SK Hynix Leads Gains, Foreign Funds Return After About a Month

This rebound was led by SK Hynix, which jumped more than 9% on Wednesday. The previous day, its American Depositary Receipt (ADR) surged 14% on improved AI sentiment. SK Hynix’s affiliate SK Square rose in tandem, and chip giant Samsung Electronics also gained more than 6%.

Foreign investors also joined the rebound. As of 11:10 am Wednesday, foreign investors had made net purchases of over $1 billion in stocks via the Kospi market. Previously, foreigners had made a record wave of selloffs in Korean local stocks, but this week marked their first net buying in about a month.

The return of foreign capital provided extra support to the market, and to some extent confirmed market participants’ assessment that deleveraging pressure is easing.

Volatility Remains High, Market Awaits Further Signals

Despite the strong rebound, the sharp volatility in Korea’s stock market has kept investors wary. The Kospi tumbled nearly 30% from its peak in just a few weeks, then rebounded almost 10% in just two trading sessions—a magnitude of swings that is rare among major markets globally.

On the day, the Korea Exchange briefly triggered the programmatic trading buy-side circuit breaker again, highlighting the high volatility of the market. Market participants say the sustainability of the memory chip cycle remains a key question, and this fundamental uncertainty has not vanished with the easing of deleveraging pressures.

For investors, the fact that about 75% of leveraged positions have been cleared means technical selling pressure has eased significantly, but whether the market can continue to recover still depends on fundamentals such as chip demand and ongoing foreign inflows.

Risk Disclosure and DisclaimerThe market carries risks and investment must be cautious. This article does not constitute individual investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing accordingly is at your own risk. ```