South Korea's double halt: Do South Korea's fundamentals still hold after the storm?

• KOSPI 200 volatility hit 97.3 points on June 29, up 305% year-on-year, driven by leveraged ETF unwinding and FSS regulatory warnings.

• Pension fund rebalancing added pressure, with South Korean pensions net selling around KRW 1.3 trillion of KOSPI shares between June 17-22.

• DDR5 demand growth and over KRW 2,000 trillion in planned Samsung/SK Hynix investment confirm the memory cycle's long-term momentum.

• Leverage regulation will curb volatility over time, strengthening the market's foundation for sustainable returns.

• South Korea's fundamentals remain intact despite record circuit breaker frequency, with potential upside at 29.3% as of June 30, 2026.

So far this year, even though South Korea's KOSPI index has shown an overall upward trend, market volatility has clearly increased, and the frequency of circuit breaker events has hit a recent high. However, we believe the main drivers behind the recent halts are mostly policy and market factors, and the long-term positive fundamentals of the market have not changed in any basic way.

A rare double halt: The sharp swings behind KOSPI

The Korea Exchange has set up a circuit breaker system for the stock market. Once the index falls past a certain level, trading must be paused. South Korea also runs a sidecar mechanism, based on the KOSPI 200 futures index: if the futures price moves more than 5% from the previous day's close and stays at that level for at least one minute, the mechanism is triggered and program trading is paused for 5 minutes.

Table 1: Conditions That Trigger Market Circuit Breakers in South Korea

	Trigger condition	Measure
Phrase 1	The market index falls 8% or more compared to the previous day, and the fall lasts for one minute.	The entire market is suspended for 20 minutes (only order cancellations are allowed during this time).
Phrase 2	The market index falls 15% or more compared to the previous day; and falls a further 1% or more from the first trigger point. (Both conditions must be met, and the fall must last for one minute.)	After the halt starts, the market enters a 10-minute single-price call auction, then resumes continuous trading.
Phrase 3	The market index falls 20% or more compared to the previous day; and falls a further 1% or more from the second trigger point. (Both conditions must be met, and the fall must last for one minute.)	Once Phase 3 is triggered, the market closes for the day (no orders, including cancellations, may be submitted); all trading activity is banned after close, including after-hours trading and stock buybacks.
Source: Korea Exchange, iFAST Compilations.

Figure 1: KOSPI 200 Volatility Index YTD Performance

Even though KOSPI has trended upward overall, KOSPI 200 volatility index has kept climbing, reaching 97.3 points on June 29 — 305% higher than the same time last year. This shows that the market's volatility should not be taken lightly.

Policy side: Regulatory warnings sparked by leveraged ETFs

Because the KOSPI index is heavily concentrated in Samsung Electronics and SK Hynix, financial institutions have launched a wide range of leveraged and inverse products tracking both single stocks and the broader index, aiming to profit from market swings. As a result, leverage levels in the South Korean stock market have risen sharply. Take the CSOP SK Hynix Daily (2x) Leveraged Product, which is mostly held by retail investors, as an example. On June 26, this fund's trading turnover reached HKD 23.6 billion, both of its turnover and assets under management (AUM) surpassed the Tracker Fund of Hong Kong, showing just how enthusiastic the market has become about these kinds of products.

On June 23, Lee Chan-jin, Governor of South Korea's Financial Supervisory Service (FSS), said that approving these kinds of products for listing had been a hasty decision. This cautious tone raised concerns among institutional investors about possible future restrictions on these products. If such restrictions are put in place, they could force money out of these products, prompting investors to start closing positions and selling. Combined with the existing leverage in the market, the impact of this round of selling was especially severe, and it also showed that in a highly leveraged environment, any negative news can cause large swings in the market and drive a broader pullback.

Market side: Worries over memory demand and institutional rebalancing pressure

Aside from domestic causes, pressure on South Korea's memory chip sector has also been building from overseas. On the 25th, Apple announced it would raise prices on its products. This adjustment made the market realize that memory shortages could push up the cost of consumer electronics, which in turn could slow down production activity and weigh on end demand for traditional memory chips like DRAM and NAND. In other words, rising memory prices are not entirely good news for chipmakers either. On top of this, news emerged that Nvidia may cut production of its Vera Rubin chip. Since Vera Rubin mainly uses HBM4 supplied by SK Hynix, the cut may water down earlier expectations of strong HBM4 demand, adding further downward pressure on the stock price.

At the same time, institutions need to rebalance their portfolios by the end of June. Since KOSPI gained more than 60% in the second quarter, some portfolios may now be overweight in Korean stocks, and having too large a share in a single market could cause these portfolios to breach asset management rules or specific requirements. Take South Korea's National Pension Service (NPS) as an example: even though the NPS recently approved raising its target allocation to domestic stocks from 14.9% to 20.8%, given how fast the South Korean market has been rising, the actual weighting after the increase could still end up above that limit. According to reports, South Korean pension funds net sold around KRW 1.3 trillion worth of KOSPI shares between June 17 and 22, adding further selling pressure to the market.

Do South Korea's Fundamentals Still Hold?

Even though the back-to-back circuit breakers may shake market confidence in the short term, we believe this market correction is driven mainly by outside factors, rather than any problem with the fundamentals.

1.      Memory shortages are a long-term trend

Beyond the worries caused by Apple's price hikes and Nvidia's possible production cut, news that SK Hynix is shifting resources toward DRAM has also raised doubts in the market about whether the memory cycle can continue. In fact, demand for traditional DRAM has not gone away earlier, the heavy focus on HBM production made the DRAM shortage worse, but DDR5 demand is now rising as well, driven by data center construction and the upgrade cycle in consumer electronics. As DDR5 prices keep climbing, SK Hynix shifting resources toward DRAM does not mean it is slowing down its HBM development. Rather, it is a business strategy adjustment aimed at maximizing profit.

Figure 2: DDR5 Price Movement

In addition, since Samsung Electronics and SK Hynix currently have very limited room to raise memory supply, Nvidia's production cut for Vera Rubin is more about reducing SOCAMM capacity, in order to meet greater demand for shipments. This move should be seen as Nvidia adjusting its supply structure in response to the memory shortage, instead an overall pullback in memory demand.

Moreover, the South Korean government is working with Samsung Electronics and SK Hynix on three mega-scale projects. The two companies are expected to invest more than KRW 2,000 trillion in South Korea over the next 10 years, including building new semiconductor plants and helping build large-scale AI model training facilities in South Korea. This large-scale investment plan not only confirms the long-term growth logic behind memory demand but also backs up the long-term outlook for both companies. As a result, we believe the long-term momentum of the memory cycle remains solid and will not be shaken by recent market news.

2.  Leverage regulation will help reduce volatility in the long run

The FSS only signaled regulation after these products had already become widely popular and the index had climbed to a high level. Rather than stabilizing market expectations, this directly triggered a wave of selling. Although leverage regulation will bring selling pressure to the South Korean stock market in the short term, regulating leveraged products remains the right direction to take in the long run. Leverage, by nature, magnifies volatility, and excessive volatility erodes market confidence and worsens losses for retail investors. Reasonable regulation helps reduce the market's systemic fragility, encourages capital to participate in the market in a healthier way, and builds a more solid foundation for sustainable long-term returns.

3.   The valuation case remains unchanged

In summary, we believe this pullback was brought on by a combination of external factors, and South Korea's growth story has not been shaken. We are therefore maintaining the earnings and fair P/E forecasts for the South Korean market set out in our earlier outlook. As of June 30, 2026, the potential upside has risen to 29.3%.

Figure 3: 12-Month Forward P/E of KOSPI

Table 2: Valuation and EPS forecast of KOSPI

	2025A	2026E	2027E	2028E
EPS (KRW)	248.9	627.6	787.2	842.9
EPS growth rate	19.4%	152.2%	25.4%	7.1%
P/E ratio	34.1	13.5	10.8	10.1
Dividend yield	0.8%	2.0%	2.5%	2.7%
Target price at the end of 2028 (Based on 13x Forward P/E)				10,958
Potential upside				29.3%
Source: Bloomberg L.P., iFAST Compilations. Data as of 30 June 2026.

Figure 4: KOSPI EPS Forecast

Related article: Upgrade to 4 Stars: Can Narratives Beyond Memory Become the New Catalyst for South Korea Market?

Table 3: Related products

Market	Fund	ETF
South Korea	LionGlobal Korea USD	Franklin FTSE South Korea ETF (NYSE: FLKR) Global X Exchange Traded Funds Series OFC - Global X Asia Semiconductor ETF (HKEX:3119)