South Korean Stock Market Volatility Surges, Global Investors Reject 'Gambling-Like' Bottom-Fishing

South Korea's KOSPI index suffered a historic blow in July this year, plunging 33% in a single month, with market valuations dropping to their lowest levels on record. Yet, despite this seemingly clear signal for 'buying the dip,' major global investment funds such as Baillie Gifford, Robeco, and Eastspring Investments are acting with unusual caution, refusing to enter the market.

Young Jae Lee, a senior investment manager at Baillie Gifford, stated that the current volatility in the South Korean stock market is too high, making it feel 'too much like gambling' for institutional investors and difficult to justify deploying capital.

According to statistical data, the turbulence in the South Korean market far exceeds that of other major global markets. Between May 27 and July 28, the KOSPI index experienced fluctuations exceeding 3% on 24 trading days—56% of all trading days—and saw extreme swings of over 5% on average every three days. In contrast, neither the U.S. nor Japan experienced such frequent large-scale volatility during the same period.

South Korea's 'fear index'—the KOSPI 200 Volatility Index—has surged to 87, more than triple its level in December last year and five times the volatility of the S&P 500 Index.

One of the triggers of this crisis has been linked to the introduction of single-stock leveraged products at the end of May. Citigroup estimates that the recent market correction has caused individual investors to lose approximately $38.7 billion (about 56.2 trillion won), with most of these losses stemming from leveraged investments.

Kim Yong-beom, Chief of the Presidential Policy Office, stated in a briefing that such market turbulence is not unique to South Korea, attempting to downplay the impact of leveraged products. However, experts and investors have criticized this assessment as 'out of touch with reality' and 'arrogant.'

Institutional investors point out that the core reason for worsening volatility is the extreme concentration of market capital in just two AI chip giants—Samsung Electronics and SK Hynix—and leveraged ETFs tied to these two companies.

While institutions like Robeco acknowledge that South Korea's current valuations are highly attractive, global funds have seen a net outflow of $12 billion this month alone. Most international fund managers are currently adopting a wait-and-see approach, demanding a higher 'margin of safety' and postponing any reassessment of their investment strategies until the market stabilizes.