SOUTH KOREA FIRST TO MARKET

Research evidence excerpt

SOUTH KOREA FIRST TO MARKET

Asia Pacific Equity Research

South Korea First to Market 21 July 2026

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Korea Equity Strategy (Mixo Das)

Update on the de-leveraging process in Korea

While the fundamentals of the Korea market remain on solid ground (despite some concerns – see below), an intense period

of de-leveraging has driven equity prices lower. The KOSPI index is now down a sizable -28% from the peak on 22 June in

a highly volatile move. What was triggered by routine fundamental concerns and rotational flow, was amplified by leveraged

ETFs, and in recent days increasingly has the hallmarks of hedge fund positioning unwind (especially given the -30% Price

Momentum factor drawdown). The rapid pace of gains in the Korea market over the past year made it an inevitable destination

of leverage - from retail investors, equity L/S hedge funds as well as macro funds - compounding these gains. As we have

noted for the past 6-7 weeks now (see here, here), some of the side effects of this growth have been the elevated volatility and

forced foreign selling - producing a self-correcting mechanism. In the near term, our focus remains on the extent of

normalization in these conditions (we estimate leveraged ETF unwind to be 75% through and equity H/F de-leveraging

>50% through). Stepping back, though, our view remains that the fundamental strength in the market remains good for several

years ahead (a combination of global AI spend, security/resilience spend, wealth effect across corporates/households/

government and structural governance improvements), meaning that the market should be able to overcome positioning

unwinds and persevere with the positive trend. We remain OW Korea in our regional allocations and our 12m-out base

case KOSPI target remains 12,500.