Foreign capital flight, house shopping, Morgan Chase's detailed the money game behind the South Korean stock-market shock.

Original by Jo Wing

Original source:See you on Wall Street

THE SOUTH KOREAN STOCK MARKET IS EXPERIENCING A RARE STRUCTURAL RIPPLE OF CAPITAL: FOREIGN INVESTMENT IS NETTING OUT IN RECORD NUMBERS, WHILE THE DIASPORA IS ENGAGED IN THE SAME AMOUNT OF CAPITAL, AND THE TWO FORCES ARE WORKING TOGETHER TO SHAPE THE UNIQUE ECOLOGY OF ASIA’S MOST VOLATILE MARKET AGAINST THE BACKGROUND OF THE FUNDAMENTALS DRIVEN BY THE AI WAVE。

According to the wind track, Morgan Chase's latest South Korean stock strategy report, released on June 25, states:Since the beginning of the year, FDI has moved from the South Korean stock market to net outwards of about $95 billion, which is expected to easily break the annual outward FDI record in any single market in Asia。AT THE SAME TIME, THE CUMULATIVE NET BUY-IN BY BULK INVESTORS (INCLUDING LOCAL ETF PURCHASES) HAS REACHED ABOUT $80 BILLION DURING THE YEAR, BECOMING THE MAIN FORCE SUPPORTING THE MARKET。

MORGAN CHASE MAINTAINED ITS VIEW OF THE SOUTH KOREAN STOCK MARKET, RAISING KOSPI ' S BENCHMARK/OPTIMISTIC/NEGATIVE SCENARIO TARGET FOR THE NEXT 12 MONTHS TO 12500/15000/8000, RESPECTIVELY, AND ADVISED INVESTORS TO MAINTAIN MAXIMUM EXPOSURE IN ANY RECALL。

THIS PATTERN OF CAPITAL GAMES WILL NOT BE REVERSED IN THE SHORT TERM, BUT AI-DRIVEN FUNDAMENTALS, THE COUNTRY ' S WEALTH EFFECTS OF CORPORATE PROFITABILITY GROWTH, AND THE POTENTIAL FOR VALUATION RESTORATION OF CORPORATE GOVERNANCE REFORMS STILL FORM THE CORE MULTI-HEAD LOGIC OF THE KOREAN STOCK MARKET. KOREA REMAINS THE BEST MARKET FOR MORGAN CHASE IN ASIA。

Forced FDI sales: size constraints trigger involuntary sales

foreign capital outflows from korea are characterized as "non-discretionary" rather than active。THE CENTRAL REASON IS THAT THE MARKET VALUE OF THE TWO LARGE STOCKS OF CHIPS, REPRESENTED BY TRISTAR ELECTRONICS AND SK HERCULES, HAS SWELLED SHARPLY AND HAS REACHED THE UPPER LIMIT OF HOLDING OF LONG-LINE FUNDS IN EMERGING MARKETS. THIS SIZE CONSTRAINT AFFECTED THE FOREIGN HOLDING STOCK OF ABOUT 10 PER CENT EACH OF THE TWO EQUITIES, FORCING THE FUND MANAGER TO CONTINUE TO REDUCE IT AS STOCK PRICES ROSE。

DATA SHOW THAT MORE THAN 90 PER CENT OF TOTAL FDI OUTFLOWS DURING THE YEAR CAME FROM THE TWO STORAGE UNITS MENTIONED ABOVE. THIS STRUCTURAL FEATURE MEANS THAT AS LONG AS THE STOCK UNIT CONTINUES TO WIN REGIONAL BENCHMARKS, THE BENCHMARK CONSTRAINTS OF THE EM FUND WILL NOT DISAPPEAR AND EXTERNAL PRESSURES WILL CONTINUE。

IT IS WORTH NOTING THAT, DESPITE CONTINUED NET FOREIGN INVESTMENT SALES, THE STOCK RATIO OF FOREIGN INVESTMENT TO SOUTH KOREAN EQUITIES ACTUALLY INCREASED SIGNIFICANTLY COMPARED TO THE BEGINNING OF THE YEAR — PRECISELY BECAUSE STOCK PRICES ROSE FAR ABOVE SALES. AT PRESENT, THE TWO MAIN STORAGE UNITS TOGETHER ACCOUNT FOR MORE THAN TWO THIRDS OF FOREIGN INVESTMENT IN KOREA. IN CONTRAST, GLOBAL-TYPE FUNDS (NON-EM-SPECIFIC) ARE SIGNIFICANTLY LOWER THAN SOUTH KOREA, AND MANY OF THE LARGE REAL-FUND ACCOUNTS IN CLIENT RESEARCH REFLECT A SHORTAGE OF OPENINGS AND A NEED FOR REPLENISHMENT。

LEVERAGE ETF EXPANSION: STRUCTURAL INCREASE IN VOLATILITY

THE ABNORMALLY HIGH VOLATILITY OF THE KOREAN MARKET IS CLOSELY LINKED TO THE EXPLOSIVE GROWTH OF THE DOMESTIC AND EXTERNAL LEVERAGE ETF. THE LEVERAGE ETF SIZE (AUM), BASED ON KOREAN ASSETS, HAS INCREASED TO $50 BILLION, WITH MOST OF THE INCREASE COMING FROM THE MARKET ITSELF。

ETFS OF THIS TYPE HAVE BEEN ABLE TO CREATE OPENINGS MAINLY THROUGH STOCK-INDICATED FUTURES AND PARTIAL SPOT AND OPTION OPENINGS, WHICH HAVE CONTRIBUTED TO A SIGNIFICANT INCREASE IN SINGLE FUTURES CONTRACTS。At the same time, the ETF's need for “crash protection” has pushed the implied volatility - the ratio of VKOSPI to VIX is now nearly five times as high as the historical normal level is about one. The leverage ETF-related Gamma imbalance, which now exceeds $1 billion, has a significant magnification effect on two-way market fluctuations。

IN ADDITION, THE INCREASED CAPITAL REQUIREMENTS OF THE KOREA EXCHANGE AND CLEARING HOUSE IN RESPONSE TO HIGHER TRANSACTION VOLUMES HAVE LED TO HIGHER FINANCING COSTS FOR LARGE MARKET-MARKET SHARES AND DIFFICULTIES FOR SOME BROKERS IN MANAGING CENTRALIZED EXPOSURES. GIVEN THE WIDESPREAD AVAILABILITY OF SUCH TOOLS, BOTH WITHIN AND OUTSIDE THE COUNTRY, THE LEVERAGE ETF SCALE WILL NOT CONTRACT SUBSTANTIALLY IN THE SHORT TERM, AND HIGH VOLATILITY WILL BECOME A REGULAR FEATURE OF THE KOREAN MARKET STRUCTURE。

Bulk disk: space is still in place and leverage risk is manageable

AGAINST THE BACKDROP OF CONTINUED OUTFLOWS OF FOREIGN INVESTMENT AND THE REBALANCING OF INSTITUTIONAL INVESTORS (PENSIONS), THE BULK BECAME THE MAIN BUYER OF THE KOREAN STOCK MARKET. DATA SHOW THAT WHEN NXT PLATFORM TRANSACTIONS AND ETF PURCHASES ARE TAKEN INTO ACCOUNT, THE NET BUYOUT DURING THE YEAR AMOUNTED TO ABOUT $80 BILLION。

There is still room for bulk purchases for three reasons: first, the level of leverage in financing balances and options transactions has increased, but remains low relative to the overall market value and customer deposits; second, the Korean diaspora has just begun to reposition overseas stocks back to the local market, with greater swing space; and third, as income growth and stock wealth effects continue to ferment, the willingness of residents to invest in equity is expected to increase further, especially in the context of limited real estate investment。

However, the share of bulkers in market transactions has fallen from the average of 65 per cent in the last two months and pension participation has increased, but the pension as a whole remains a net seller to maintain the target group weight。

AI NARRATIVE DISTURBANCE: NO UPWARD TREND IN CYCLICAL FLUCTUATIONS

THE BASICS OF THE KOREAN MARKET ARE HIGHLY TIED TO THE AI CYCLE, WHICH IS STILL ON A STRONG UPWARD TRAJECTORY. ANALYSTS MAINTAIN A CONSTRUCTIVE JUDGEMENT THAT THE STORAGE CYCLE IS "HIGHER AND LONGER" AND BELIEVE THAT THE KOREA SCIENCE AND TECHNOLOGY UNIT IS MORE RESILIENT TO GLOBAL EQUITY。

However, it is inevitable that the narrative of AI should be of a phased nature. Morgan Chase cited five major factors that had contributed to market volatility in the recent past: signs of optimization at the user level to reduce token consumption, causing token price-fixing concerns; a positive market response to GLM 5.2 under China ' s ISP AI, re-emerging competition concerns; policy uncertainties arising from the latest export control policies; persistent stock and bond supply pressures; and the possible easing of pressure on relevant markets and plates by reopening the Strait of Hormuz。

As long as capital expenditure on super-large cloud computing continues to increase faster than capital expenditure on semiconductor equipment, the pattern of supply and demand imbalances will continue, thus supporting the profitability of the storage chip manufacturer。

THE AI BENEFITS OF THE KOREAN CHIP-STORAGE ENTERPRISE ARE LARGE ENOUGH TO HAVE A SUBSTANTIAL IMPACT AT THE MACRO LEVEL. IT IS ESTIMATED THAT THE DIRECT TAX (INCLUDING CORPORATE INCOME TAX) PAID TO THE GOVERNMENT BY THE TWO MAJOR STORAGE ENTERPRISES OVER THE NEXT THREE YEARS COULD EASILY EXCEED $350 BILLION, AND THAT THE PERSONAL INCOME TAX WOULD BE LARGER IF THE EMPLOYEE BONUS WERE INCLUDED。

FOR REFERENCE PURPOSES, THE REPUBLIC OF KOREA CURRENTLY HAS A TOTAL FOREIGN EXCHANGE RESERVES OF ABOUT $427 BILLION AND A TOTAL GOVERNMENT DEBT OF ABOUT $1 TRILLION. THIS WEALTH EFFECT WILL PROVIDE THE KOREAN GOVERNMENT WITH SUFFICIENT RESOURCES FOR LONG-TERM PHYSICAL AND FINANCIAL INVESTMENT, SOCIAL INFRASTRUCTURE DEVELOPMENT AND STRATEGIC PLANNING FOR THE AI ERA。