Judging from the data on the Korean stock market: it is currently in a high-volatility phase of repeated deleveraging, rather than a “final liquidation.”

Author: qinbafrank

On July 22, Korean stocks opened higher but then weakened: what’s behind it—foreigners keep buying, retail investors keep capitulating, but the safety buffer is falling. The last line of yesterday’s post said, “There has been encouraging progress in deleveraging for Korean stocks, but the overhang in sentiment and product-based leverage may not have fully cleared yet, so there could be some back-and-forth.” The reversal came today: stocks opened higher in the morning, bounced in the first half, and then bled out across the board by the afternoon. This “strong open, weak close” suggests that even during the rebound, profit-taking, risk-control, and position-reduction pressure remain heavy.

1、The obvious credit financing has cumulatively been reduced by 13.1%, but the data from the latest July 21 shows a rebound. The most important deterioration is that the custody funds fell by 5.83 trillion won in a single day, and R2 has risen again to 31.45%.

Debt increased slightly, cash dropped sharply, and the remaining financing positions have become heavier relative to cash in accounts that can actually be used.

2、On July 21, the amount of forced liquidation tied to unsettled trades reached 58.3k won, higher than 59.6B won on July 20. It stayed above 52.8B won for two consecutive trading days, and this is the highest level since July 10’s 50B won.

More importantly, the forced liquidation amount as a percentage of unsettled receivables rose from:

July 16: 1.1%

July 20: 4.6%

July 21: 5.7%

—showing a continuous upward trend.

Although a full-scale, stampede-like blow-up has not yet occurred, rising from 1.1% to 5.7% indicates that the pressure from passive handling of credit trades in the very short term is increasing rapidly.

This means high-pressure forced liquidations are still ongoing, but a one-time, final “all-clear” liquidation has not yet formed.

3、Retail continues to capitulate; foreigners continue to buy

1）On July 22, Korean individual investors:

Net sold SK hynix leveraged long ETFs of about 334 billion won;

Net sold Samsung Electronics leveraged long ETFs of about 33.4B won;

Combined, net sold about 58.7B won;

At the same time, net bought SK hynix inverse 2x ETFs of about 357 billion won.

Also, the leveraged long ETFs of Samsung Electronics and SK hynix have both been net sold by individual investors for two consecutive trading days.

Leveraged longs are starting to cool down meaningfully, but it’s not yet a full clearance of product leverage; rather, it’s gradually shifting from one-way chasing longs into high-frequency two-way trading between long and short.

2）On July 22, KOSPI foreign investors net bought 2.6311 trillion won

SK hynix net bought about 1.2563 trillion won;

Samsung Electronics net bought about 0.5.83k trillion won;

Combined, about 1.8397 trillion won;

This represents about 69.9% of all foreign net buying in KOSPI.

Therefore, foreign capital is not indiscriminately buying the entire Korean market—it is highly concentrated in absorbing two semiconductor blue-chip leaders.

Overall

Foreigners choose to selectively bottom-fish semiconductor leaders; domestic institutions continue to reduce risk; retail pulls some money out from KOSPI cash equities and leveraged long ETFs.

With individuals selling and foreigners buying, it means some risk is transferred from the household sector to global institutions. Usually, this structure is healthier than one where “foreigners and institutions both sell while retail alone bottoms picks.”

A possible conclusion is:

Korean stocks are in the mid-to-late part of the fourth stage characterized by high-volatility, repetitive deleveraging—not the final clearing stage.

Of course, today’s broader weakness in Asian markets also has something to do with the macro environment: the pressure created by bonds, oil, and FX still being pushed higher. Here, the core is oil prices—plus, of course, there’s also a risk-off move ahead of Google’s earnings report.