Seoul: The fear gauge of South Korea's stock market has dropped after authorities took steps to curb the 16 single-stock leveraged exchange-traded funds (ETFs) blamed for recent market volatility, the bourse operator said Monday. Financial authorities raised the minimum cash deposit for single-stock leveraged ETF investments on July 31, as the speculative investment products triggered wild swings on the stock market.
According to Yonhap News Agency, the KOSPI 200 volatility index, or VKOSPI, fell to as low as 69.87 on Monday. Compared with July 30, when the index stood at 86.18, it marked an 18.91 percent decline. This reduction in the volatility index marks the first time since May 28 that the index fell below 70, illustrating a significant decline in market instability.
The VKOSPI is the official Korean volatility index and serves as a "fear gauge," measuring the market's expected volatility over the next 30 days based on KOSPI 200 options. The recent measures taken by financial authorities, which include raising the minimum cash deposit required to invest in the single-stock leveraged ETFs to 30 million won (US$21,184) from 10 million won, aim to stabilize market conditions.
The single-stock leveraged ETFs, linked to major companies such as Samsung Electronics Co. and SK hynix Inc., were introduced in May. These products have been widely viewed as a key factor behind the recent sharp fluctuations in the domestic stock market, prompting regulatory intervention to mitigate their impact.