KOSPI Sell-Off Leveraged ETFs Flow Dynamics Policy Risks and Value Disconnects

The KOSPI is experiencing a significant correction driven by mechanical forced selling from leveraged ETF dealer gamma-hedging. Korean financial authorities are preparing policy interventions to mitigate volatility ahead of a Presidential Briefing.

Key Takeaways

• 1.The KOSPI has corrected 27% from its June record high, driven primarily by mechanical dealer gamma-hedging from leveraged ETFs rather than fundamental shifts.
• 2.Authorities (FSC/FSS) are currently evaluating policy measures to curb volatility, with potential implementation expected following the July 15 Presidential Briefing.
• 3.Industry participants have proposed voluntary measures including reducing leverage ratios from 2x to 1.5x and capping daily churn to address regulatory concerns.

Table of Contents

• The Geopolitical Spark & Positioning
• Mechanical & Passive Selling Pressures
• More on the leveraged ETFs from our EQ Strategy Team...
• Leveraged & Inverse ETFs: Calculated Dealer Gamma-Hedge
• Event Timeline
• Industry Proposals on the Table
• More in Macro

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