South Korea's Stock Market Deleveraging Approaches Its Final Phase
The intense deleveraging storm that hit South Korean equities since mid-June may have passed its peak, according to a recent market analysis from JPMorgan. The bank's strategists noted that the concentrated liquidation wave from leveraged exchange-traded funds (ETFs) is "largely complete," while the deleveraging process among hedge funds is approximately 90% finished.
Attractive Positioning and Valuations Emerge
The report highlights that the market's overall positioning now appears considerably attractive following the adjustment. JPMorgan strategists, including Mixo Das, point to a combination of favorable factors: depressed valuations, sustained positive corporate earnings momentum, and a reduction of previously excessive leverage to more reasonable levels.
"As the market corrected, the total size of such leveraged products has declined significantly from its peak and is now estimated at around $17 billion," the report added. The trend of massive, rapid inflows into leveraged ETFs that previously fueled the rally has noticeably slowed in recent days.
Residual Risks and Investor Sentiment
While the most urgent selling pressure may be abating, the report cautions that risks are not entirely off the table. The recent sharp stock declines could still trigger some further deleveraging in the coming days. More significantly, many investors are currently opting for a wait-and-see approach.
Their primary concerns are twofold: the uncertainty surrounding potential interest rate hikes from the upcoming Federal Open Market Committee meeting, and the market's high expectations for the impending quarterly earnings reports from mega-cap technology companies, where any disappointment could trigger volatility.
In essence, JPMorgan's report sketches a "post-storm" market landscape: the worst of the selling may be over, a window of value is opening, but a full restoration of market confidence still hinges on navigating key macro and micro hurdles ahead.