[Edaily Reporter Seong Ju-won] The KOSPI, which has risen by over 90% this year, has begun to sound warning bells of overheating. Bloomberg reported on the 7th that a sense of caution—that the market has “risen too fast and too much”—is spreading across the derivatives market, as global institutional investors reduce their long positions and move to hedge against declines.

◇Golden Horse and M&G Reduce Exposure and Hedge Against Declines
Hedge fund Golden Horse Fund Management has reduced its holdings in the Korean stock market and added derivative hedges over the past few weeks. Lee Ling Ong, managing partner at Golden Horse, said, “We have slightly reduced our growth exposure and added derivative protection,” adding, “It is a prudent decision to secure some cash reserves ahead of major initial public offerings (IPOs) this month, such as the SpaceX listing.”
British asset manager M&G Investments is also reducing its weighting in memory and foundry stocks such as #SamsungElectronics and #SKHynix, and diversifying its investments into downstream companies in the artificial intelligence (AI) supply chain. Vikas Parshad, a portfolio manager at M&G, explained, “The alpha lies at the lower end of the value chain,” referring to “the ‘pick-and-shovel’ companies that benefit from AI infrastructure investment without being at its core.”
In fact, the iShares MSCI Korea Exchange-Traded Fund (ETF) plummeted 14% in the U.S. market on the 6th (local time). According to Bloomberg Intelligence, the ETF’s options market also showed a trend of increasing demand for downside protection over bets on an uptrend. Tanvir Sandhu, Global Head of Derivatives Strategy at Bloomberg Intelligence, pointed out, “The core of the discussion is not whether the KOSPI story is attractive, but how to maintain investments while preserving returns.”
◇Foreign investors’ net selling this year hits record high… Warning signs for retail leverage
The outflow of foreign capital is also cause for concern. Global funds have recorded a cumulative net sell-off of $76 billion (approximately 118.537 trillion won) this year, reaching a record high, and have continued their net selling streak without a single day’s break over the past month. Concerns are mounting that volatility could increase as a pattern solidifies where retail investors are absorbing the shares sold by foreign investors.
Furthermore, some point out that the combination of the popularity of leveraged ETFs and the upcoming introduction of weekly individual stock options could act as a trigger amplifying market shocks. Stéphane Martin, Head of Asian Institutional Derivatives Sales at Optiver, warned at last week’s Bloomberg Volatility Forum, “While increased retail participation is positive, it could push the market into an unstable situation during a market reversal.”
◇ "Not a Shift to a Bear Market"... Still Cheaper Than Taiwan
However, experts draw a clear line, stating that this correction does not signal a shift toward pessimism regarding the Korean stock market.
According to Bloomberg data, the KOSPI’s 12-month forward price-to-earnings (P/E) ratio currently stands at 8.6 times, below the five-year average (10 times) and significantly lower than Taiwan’s stock market, which is around 20 times. Earnings momentum is also gaining traction. According to Golden Horse Fund, the projected earnings growth rate for the remaining KOSPI stocks—excluding Samsung Electronics and SK Hynix—has risen from 20% in January to over 50% currently.
Rajiv de Mello, Global Macro Portfolio Manager at Gama Asset Management, said, “Although the pace of the rally is dizzying, I will maintain my investment in this market environment,” adding, “If you exit now, it will be very difficult to re-enter when there is no correction.”
The key question is how long this balance can be maintained. If the sharp decline in U.S. tech stocks, triggered by concerns over interest rate hikes, spreads to the Korean stock market, it could lead to a simultaneous wave of further foreign capital outflows and the liquidation of leveraged positions by retail investors. Whether the market will settle into a “moderate pace” or experience a steeper pullback is the most critical variable this week.