The Two Faces of the Semiconductor Boom: Fueling Stock Market Volatility and Driving Housing Demand

Bank of Korea Monetary and Credit Policy Report


Surge in Leveraged ETF and Leverage Investing

99% of KOSPI Surge Attributable to Samsung Electronics and SK hynix

Resolving Semiconductor Concentration Is Key to Long-Term Growth <

The Bank of Korea has analyzed that leveraged single-stock exchange-traded funds (ETFs) focused on major stocks like Samsung Electronics and SK hynix, as well as personal leveraged investing, so-called 'bittoo' (investment made with borrowed money), have increased volatility in the Korean stock market. The Bank pointed out that resolving the concentration in the semiconductor sector is necessary to establish a foundation for Korea Composite Stock Price Index (KOSPI)'s long-term growth. The report also cautioned that robust economic growth driven by semiconductors could stimulate demand for home purchases, highlighting the need for the government to maintain a consistent regulatory stance on household loans.

Contribution Rate of Samsung Electronics and SK hynix to KOSPI >99.0% When It Rose from 8,000 to 9,000

In its Monetary and Credit Policy Report published on September 10, the Bank of Korea diagnosed that a surge in leveraged ETF investment stemming from expectations of a sustained rise in stock prices has heightened price volatility from a supply and demand perspective. Increased leveraged investments in Korean stocks from overseas investors have also affected the domestic market, as they prompted higher volumes of spot and futures trading for hedging purposes.

The Bank explained that individuals' leveraged investments, which reached a historic peak and later unwound, also amplified fluctuations in stock prices both upward and downward. In the global financial markets, the expansion of leveraged investments in Korean stocks has resulted in unexpected ripple effects.

A heavy reliance on the semiconductor sector was also identified as a factor. When the KOSPI surged from 8,000 to 9,000, the contribution rate of Samsung Electronics and SK hynix to the index's increase reached 44.7% and 54.3%, respectively, for a combined 99.0%. Even during the steep plunge of the KOSPI from 9,100 to 5,500, the drop was attributed to Samsung Electronics with a 29.8% contribution and SK hynix with 39.6%, totaling 69.3%. While major memory chip makers in the United States and Japan also saw volatile price movements, their market share was smaller than in Korea, which limited their overall impact on those countries' stock indices.

Foreign investors' profit-taking and portfolio rebalancing also affected supply and demand dynamics. As the Korean stock market soared much higher than other major markets, foreign investors engaged in large-scale selling to realize profits and readjust their portfolios.

Although market volatility has somewhat subsided recently, concentration in semiconductor stocks persists, and the Bank of Korea emphasized the need for close scrutiny of factors driving volatility. Bank of Korea Deputy Governor Park Jongwoo said at a press briefing, "While the size of leveraged ETFs has decreased considerably, we do not think the situation is safe yet and will continue to monitor developments closely."

An apartment complex has been built around Dongtan Station in Hwaseong, Gyeonggi Province. Photo by Yonhap News Agency

High Growth Stimulates Demand for Home Purchases... "Household Loan Regulation Should Be Maintained"

The Bank of Korea also diagnosed increased uncertainty regarding recent housing price trends and household loan conditions. While it assessed that the ongoing policy of raising base interest rates should curb demand for household loans and dampen expectations for housing price increases, it pointed out that robust economic growth could raise demand for home purchases. The Bank stressed that the government should maintain a consistent regulatory framework on household lending to avoid fueling market expectations.

Recently, apartment prices in the Seoul metropolitan area have continued to rise, particularly among mid- and low-priced homes, driven by concerns about supply shortages and a shift in demand from the rental to the purchase market due to instability in the lease markets. Since July, the price increases in the three Gangnam districts (Gangnam, Seocho, and Songpa) and Yongsan District have slowed significantly. However, the outskirts of Seoul and regulated areas in Gyeonggi Province have continued to experience strong price growth. According to Korea Real Estate Board, the housing price increase rate in the three Gangnam districts and Yongsan decreased to 0.174% as of July 20, and for three weeks since August 17, these districts have posted consecutive declines. In contrast, Seoul’s outskirts have maintained gains of 0.3-0.4%.

Despite stringent lending regulations and overall credit volume management by the financial sector, household loans have continued to grow as the number of housing transactions rises. Deputy Governor Park observed, "With home prices in the greater Seoul area continuing their strong upward trend and household loans consistently increasing, risks of financial imbalances are mounting."

He also described prospects going forward as far from easy. The Bank noted that if the government's 'Rapid Housing Supply Plan' announced on August 13 is implemented smoothly, it could ease concerns about supply shortages and help stabilize the market. However, the Bank said it remains uncertain whether supply-demand conditions can improve in the short term.

The report pointed out that, with supply-side uncertainty unresolved, the demand for home purchases could further expand in the future. As Korea's economic growth boosts corporate earnings and increases nominal wages, household purchasing power will rise, potentially driving up demand for home purchases. In fact, in the first half of this year, the payment of performance incentives by some semiconductor companies and expectations of broader in-house loan programs converged to fuel increased housing prices in core "semiconductor belt" areas such as Dongtan in Hwaseong, Yongin, and Yeongtong in Suwon.

In this context, the Bank of Korea has evaluated that the government's recent move to raise the overall household debt target could provide greater capacity for household loans, which might become a factor driving further loan growth depending on housing market trends. Deputy Governor Park commented on the government’s regulatory easing, stating, "Although overall relaxation increases the burden of household debt growth, I do not think the government’s commitment to promoting macroeconomic stability has changed. It remains important to maintain consistency in policy so as not to stimulate housing market expectations or trigger additional household loan growth."

This content was produced with the assistance of AI translation services.