Korean Stocks Plunge 33% in July as Global Institutions Stay on the Sidelines
Taylor Wilson
KOSPI plunged 33% in July, its worst month ever, pushing valuations to a record low of under 6× forward P/E — yet global funds are not buying the dip because extreme volatility makes the market uninvestable.
What just happened to Korean stocks?
KOSPI fell 33% in July — the largest single-month decline on record. Its 12-month forward P/E dropped below 6×, also an all-time low.
Global funds pulled a net $12 billion out this month. The KOSPI 200 volatility index — a gauge of market fear — surged to 87, more than triple its December level.
The market triggered nine circuit breakers, each set off by a single-day drop exceeding 8%. This means → the sell-off was not one sharp move but a series of violent swings that made it impossible for institutions to hold positions steadily.
If it's this cheap, why isn't anyone buying?
Pictet Asset Management senior investment manager Young Jae Lee put it bluntly: "We cannot put money into what is close to a gambling situation." He partly blamed leveraged ETFs — when Samsung Electronics and SK Hynix swung hard, risk teams demanded exposure cuts, and foreign investors "may keep selling until volatility normalises."
Robeco's Asia-Pacific equities head Joshua Crabb acknowledged valuations are attractive but said he would not add — he is "watching closely," waiting for markets to "stabilise a bit."
In plain terms = a low price alone is not a buy signal. If the market can still drop 8% tomorrow and hit another circuit breaker, institutional risk models simply will not allow entry.
What is driving the volatility?
Eastspring Investments portfolio manager John Tsai pointed to retail margin lending as a key amplifier. As of July 28, margin balances had fallen 14% from the prior month's peak to ₩33.2 trillion (about $23 billion) — still elevated.
This means → retail traders borrowing to buy stocks get force-liquidated on drops, and those liquidations trigger further declines — a vicious loop of "fall → margin call → more selling."
Fidelity International multi-asset manager Ian Samson said volatility means "from a portfolio-construction standpoint, we have to be careful not to buy too aggressively," but he is looking to add "in a disciplined way" — sizing positions so that short-term swings do not cause unmanageable losses.
Is anyone buying against the trend?
Jonathan Pines, head of Asia ex-Japan equities at Federated Hermes (an AllianceBernstein affiliate), said his team is adding exposure to Korean memory-chip names, favouring Samsung Electronics — calling it "the cheapest large-cap AI stock in the world."
His logic: even if the AI-memory bubble bursts, the low price itself acts as a cushion. Samsung and SK Hynix now trade at lower multiples than global peers TSMC and Micron.
This reflects a nuance: not all institutions are avoiding Korea, but those willing to act are picking individual stocks, not the broad market — betting that "cheap enough means safe enough."
Can regulators restore calm?
Korean authorities have halted new listings of single-stock leveraged ETFs and, after an emergency meeting, announced plans to further restrict retail participation — including caps on investor position sizes.
Pictet's Lee said leveraged ETFs drove the overshoot and that valuations are now below fundamentals, but he wants to see "real stability" first.
In plain terms = regulators have moved to cut off the "retail leverage → boom-and-bust" feedback loop, but rebuilding institutional confidence takes time. Whether the market can regain trust after the crackdown is the key test for the next phase.
Content is for reference only, not financial advice.