KOSPI Falls 28% Since June Peak, Driven by Deleveraging and Forced Position Liquidations, JP Morgan Reports

According to JP Morgan's July 21 report on South Korean equity market dynamics, a sharp 28% decline in KOSPI since June has been primarily driven by excessive deleveraging and forced liquidations of leveraged positions by hedge funds and retail investors.

Leveraged ETF net assets tied to Korean assets contracted from $50 billion at end-June to $26 billion recently, representing a 52% reduction. JP Morgan estimates that approximately 75% of the adjustment to normal levels of $18 billion has been completed. The bank noted that foreign investor selling pressure is also easing, as MSCI Emerging Markets index weightings for Samsung Electronics and SK Hynix have normalized. JP Morgan maintained its overweight rating on South Korean equities and its 12-month KOSPI target of 12,500 points, citing intact corporate fundamentals and continued AI-driven demand.