The Bank of Korea has called for enhanced monitoring of overseas derivatives linked to Korean chip manufacturers, warning that their rapid growth could amplify volatility in the domestic market. The central bank pointed to leveraged bets by Situational Awareness hedge fund as a recent example. In its semiannual monetary policy report submitted to parliament on Thursday, the Bank of Korea stated that concentrated exposure to semiconductor stocks in Korea, foreign investors’ portfolio rebalancing, and the buildup and unwinding of domestic leverage were key drivers behind the unprecedented volatility in the KOSPI index from January to July. The Bank of Korea noted that global banks and ETF managers, when hedging total return swaps, traded Korean spot stocks, futures, and options, clearly amplifying domestic stock price fluctuations. Although the Bank of Korea did not cite specific cases, an unusual trade involving SK Hynix in July triggered nearly $60 million in liquidations in offshore digital currency markets, highlighting the growing cross-market risks associated with leveraged products tied to Korean chipmakers. (Jin10)
South Korea's Central Bank Warns of Risks from Derivatives Linked to Chip Makers
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Summary
South Korea’s central bank has raised concerns about derivatives activity involving domestic semiconductor companies, warning of increased market volatility. The bank pointed to leverage positions taken by the Situational Awareness hedge fund as a key example. In its latest report, it noted that semiconductor stock concentration, foreign investor rebalancing, and domestic leverage contributed to KOSPI fluctuations from January to July. Global banks and ETF managers using total return swaps on Korean equities have further amplified price movements. A margin call on SK Hynix in July triggered nearly $60 million in offshore crypto liquidations, underscoring cross-market risks. The central bank emphasized the need to evaluate the risk-to-reward ratio of leveraged products linked to semiconductor stocks.
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