UBS: Maintains KOSPI target price at 9,200 points, but deleveraging may intensify short-term volatility.
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The South Korean government has introduced new regulations for single-stock leveraged ETFs. Coupled with the market’s own deleveraging pressures, this is reshaping the short-term volatility landscape for the KOSPI. UBS, while maintaining its target price of 9,200 points for the KOSPI, warns of heightened recent volatility risks and has accordingly adjusted its portfolio allocation.
The Financial Services Commission (FSC) of Korea announced a series of tightening measures, including raising the minimum cash margin to KRW 30 million, suspending new product issuance, banning marketing and promotion, and requiring investors to extend education hours. Meanwhile, the asset management scale (AUM) of single-stock leveraged ETFs has dropped from the peak of KRW 2.4 trillion on June 25 to around KRW 1.7 trillion due to price pressures, meaning the market’s self-driven deleveraging actually preceded regulatory implementation.
Although earnings fundamentals provide support—UBS expects KOSPI earnings per share (EPS) to grow by 265% and 66% in 2026/27 respectively—the earnings outlook uncertainty of Samsung Electronics (SEC) and SK Hynix (SKH), along with concerns over AI demand, are expected to continue suppressing market sentiment in the short term. UBS has shifted its portfolio strategy to a barbell configuration, adding Shinsegae, Celltrion, and Samsung E&A, and removing Coupang and four other targets.
New Regulatory Measures: Uneven Strength, Essentially Raising Entry Barriers
The new FSC regulations tighten control over single-stock leveraged ETFs from multiple dimensions. The most closely watched measure is raising the minimum margin requirement from KRW 3 million to KRW 30 million (effective August 5), mandating that margin must be paid in cash, not securities (effective August 19), and banning margin withdrawal during holding periods. Additionally, the minimum trading unit is proposed to be raised from 1 to 20 (scheduled for November), compulsory education hours are extended from 2 to 3, and must include recent market trends and loss case analysis.
UBS believes that suspending new product issuance and the KRW 30 million cash margin requirement are the two most effective measures. For margin thresholds, KRW 30 million equates to 7% of family assets at the third income quintile and 27% of financial assets, imposing substantial constraints on retail participation. In contrast, extending education hours and increasing minimum trading units (20 units ≈ USD 190) have a relatively limited practical effect.
The Market Has Already Deleveraged Spontaneously, Pressure Released Ahead of Regulation
It is noteworthy that before the introduction of regulations, falling market prices had already accelerated single-stock leveraged ETF contraction.
UBS data shows that the combined AUM of SEC and SKH single-stock leveraged ETFs listed domestically and abroad in Korea has fallen from the peak of KRW 2.4 trillion on June 25 to about KRW 1.7 trillion now; total AUM covering all leveraged ETFs also declined from the peak of KRW 4.8 trillion on June 22 to KRW 3.3 trillion, a drop of about 31%.
The loss effect is the immediate driver of this spontaneous deleveraging. If holders maintained positions since ETF listing on May 27, SKH and SEC leveraged ETFs have seen losses of about 32% and 30% respectively, while these underlying stocks had only fallen 7%-9%; if measured from the June 25 peak, leveraged ETF losses expanded to 44%-55%, versus declines of 22%-29% for underlying assets. The negative compounding effect significantly amplifies actual losses with leveraged tools. Net purchases by retail investors remain positive, but are slowly trending down.
Impact of Leveraged ETFs on Underlying Stock Liquidity is Significant
The current structural impact of single-stock leveraged ETFs on KOSPI far exceeds the historical precedent of the battery sector in 2023.
In July 2023, after the launch of battery stock leveraged ETFs, negative price movements took about 6 to 9 months to gradually digest, at which time the battery sector accounted for only 16% of KOSPI market cap.
By June 2026, SEC and SKH combined market cap account for 56% of KOSPI, single-stock leveraged ETF trading volume for July is respectively equal to 54% and 24% of SKH and SEC underlying stock volume, accounting for about 25% of total KOSPI trades. Considering the multiplier effect of 2x leverage, UBS believes ETF-related capital flows could have a more pronounced impact on underlying stock prices, causing prolonged volatility.
Long-Term Target Price Unchanged, Short-Term Barbell Strategy to Manage Volatility
UBS reaffirms the KOSPI 12-month target price of 9,200 points (9x NTM P/E), with a downside/upside scenario range of 5,500/10,500 points. The core logic is: KOSPI EPS estimated to grow by 265% and 66% in 2026/27, valuations are historically low, and the overall market remains attractive.
However, in the short term, UBS believes uncertainty in AI demand and volatile earnings outlooks for Samsung Electronics and SK Hynix will continue to drive up market volatility, which in turn will accelerate further contraction in leveraged ETF scale.
To address this short-term uncertainty, UBS has adjusted its portfolio to a barbell strategy: it has added Shinsegae (target price KRW 1 million), Celltrion (KRW 280,000), and Samsung E&A (KRW 71,000) to its preferred list; while removing HDEC, KAI, KSOE, and Coupang. Among its overweight picks, SK Hynix (target price KRW 3.2 million) and Samsung Electronics (KRW 550,000) remain top, with potential upsides of 74% and 116% respectively.
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