The storage supercycle faces a test, volatility in Korean stocks hits a “new high,” and hedging costs soar.

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After experiencing the strongest rally at the start of the year globally, investors are now hedging against volatility risks in the South Korean stock market.

On Monday, the South Korean stock market suffered its largest decline since April, with the KOSPI Index dropping more than 5%. At the same time, the cost ratio of one-month options betting on a 10% drop in the KOSPI Index to those bullish on the index surged to its highest level since last November.

(Yesterday, the KOSPI Index plunged sharply but rebounded with a higher open on Tuesday)

Notably, the premium of the KOSPI Index Volatility Index relative to the VIX has risen to a record high. During the strong rebound in the South Korean stock market over the past few months, the spread between the two has steadily widened. Analysts believe investors have increased their hedging efforts while chasing the rally.

Although volatility has risen across asset classes and stock markets, the surge in VKOSPI has been particularly notable. This reflects investors’ distinctly heightened anxiety about a potential correction after the memory supercycle propelled sharp gains in South Korea’s stock market.

(Before the sharp drop on Monday, the KOSPI Index had already gained over 20% this year)

On Monday, the share prices of Samsung Electronics and SK Hynix, the two major chipmakers, both plummeted over 5%. Despite both companies posting significant profit growth last week, their share prices fell following the earnings announcements. This further intensified investors’ caution.

Volatility Indicators Surge to Extreme Levels

The KOSPI 200 Volatility Index (VKOSPI) soared nearly 8 points on Monday, posting its largest single-day gain in nearly ten months and has now risen for six straight trading sessions.

Last week, Jangwon Seo, Head of Asia Global Derivatives at Korea Investments & Securities, noted that the elevated VKOSPI reflects “heightened market uncertainty and expectations of extreme volatility in Korean stocks,” recommending investors consider hedging.

Paul Johnson, Head of Asia-Pacific Equity at Barclays, pointed out last week that the rally in the Korean market accelerated in January. He stated:

Given the relatively illiquid volatility market and the limited supply of index-linked structured products, the demand for leveraged speculative trading and hedging through options naturally drives the market significantly higher.

Since its April low last year, the benchmark KOSPI Index has more than doubled, outperforming comparable markets globally. This robust rally has prompted investors to step up protective measures alongside their gains.

Ha SeokKeun, Chief Investment Officer at Eugene Asset Management, said:

A cautious approach is needed—wait for confirmation of the market rebound before opening new positions.

Nevertheless, he still views this correction as a buying opportunity.

Risk Warning and DisclaimerThe market involves risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing based on this article is at your own risk. ```