SEOUL, June 23 (Reuters) - South Korea's KOSPI plummeted
9.99%, its steepest drop in more than three months, on Tuesday
as overseas investors sold chipmakers following regulatory
signals that the sector's rally had gotten overheated.
The benchmark KOSPI closed down 910.71 points, its
biggest daily plunge since March 4, at 8,203.84 points.
Market bellwether Samsung Electronics Co. ( SSNLF ) and peer SK
Hynix shed more than 12% each, wiping out billions
in market value and triggering an automatic 20-minute
bourse-wide trading halt in the afternoon.
The KOSPI index has become increasingly dominated by the
two chipmakers that now make up more than half of the market
value, as they propelled the index past the historic 9,100-point
level for the first time on Monday.
Tuesday's pullback underscores the intensifying volatility
of a market that critics worry has become dangerously
overstretched, says Alexander Redman, chief equity strategist,
CLSA.
"Volatility has blown out. (This kind of volatility) cannot
be explained without heavy retail engagement," said Redman.
"What worries me is that retailers are in the driving seat,
because they use a lot of margin, though the ratio to market cap
is small. What is more worrying is that regulators have now
allowed leveraged single security ETFs, pouring fuel onto the
fire."
On Monday, the head of South Korea's market watchdog Lee
Chan-jin said the government had been too hasty in approving
leveraged funds tied to some of the country's best-known chip
stocks, which were introduced last month and have contributed to
heightened volatility.
Regulators recently cautioned retail investors against the use
of leverage on the KOSPI, as margin debt, or borrowing to buy
stocks, rose to a record high in June.
The KOSPI has risen 94.67% so far this year while the won
has weakened 6.5% against the dollar.
In money and debt markets, September futures on three-year
treasury bonds gained 0.14 point to 103.01.
The most liquid three-year Korean treasury bond yield
fell by 3.1 basis points to 3.772%, while the
benchmark 10-year yield fell by 1.8 bps to 4.179%.