Leverage liquidation pressure nears its end as the Korean stock market sees a strong rebound

(1) The South Korean stock market surged on Wednesday, as liquidation pressure from leveraged trading—which had driven the benchmark index down nearly 30% from its peak—has largely abated, effectively easing a weeks-long selloff. Since the high in June, the market's capitalization has evaporated by about 1.2 trillion US dollars. (2) The recent slump was mainly triggered by leveraged ETF liquidations, a contraction in retail margin loans, and concerns about the outlook for the memory chip industry. JPMorgan strategists estimate that around 75% of the deleveraging process for leveraged ETFs has been completed. (3) According to data from the Korea Financial Investment Association, as of July 16, investors have slashed their leveraged equity positions to the lowest in three months, with outstanding margin financing falling 13% from the late-June peak to 33.4 trillion won (about 22.6 billion US dollars), which is widely seen by the market as a clear sign of improving conditions.