Robeco Asset Management: "Korean Stock Market Volatility Driven by Mechanical Selling from Leverage Unwinding"

"Korean Stock Market Still Offers Investment Appeal"

Recently, a foreign asset management firm has analyzed that the recent volatility in Korea's capital markets has been largely driven by mechanical selling triggered during the unwinding of leveraged investments by investors.

On March 13, Robeco Asset Management stated, "Despite the volatility in the Korean stock market, the strong fundamentals and attractive valuations of Korea's major companies mean that the market still offers compelling investment opportunities."

Recently, the KOSDAQ index experienced high volatility, plunging about 18% since the end of February before rebounding to a level about 5% lower than at the start of the month as of March 10.

Robeco assessed that "while Middle East geopolitical risks have contributed somewhat to the heightened volatility, the mechanical unwinding of excessively accumulated credit leverage has also played a significant role in amplifying market volatility."

"Credit leverage investment → stock price decline → automatic margin calls → forced liquidation → indiscriminate selling pressure"

Jan de Bruin, Portfolio Manager of Emerging Market Equities at Robeco Asset Management

In the 2025 bull market, retail investors’ leveraged investing reached an all-time high, with margin trading balances expanding to 32.8 trillion won and outstanding balances rising into the 1 trillion won range.

When stock prices subsequently turned downward, automatic margin calls were triggered on these leveraged positions, leading to a chain of forced liquidations and resulting in indiscriminate selling across the market. Robeco diagnosed that the recent market decline was not only due to fear-driven investor sentiment but also mechanically amplified by leverage.

Robeco expects that the indiscriminate forced liquidations, which have exacerbated the market downturn, will gradually subside. The firm noted that institutional investors have recently resumed net buying, and that the Korean government's market stabilization fund, currently operating at approximately 68 billion dollars, is also expected to contribute to market stability.

In addition, Robeco cited the robust fundamentals of Korea's major companies as another positive factor for the domestic stock market. For major blue-chip stocks such as semiconductors, automobiles, and electric vehicle batteries, they explained that despite recent declines in share prices, company fundamentals remain largely unchanged, improving the risk-reward profile for long-term investors.

Robeco evaluated the Korean market as still an attractive investment destination. The firm pointed out that the Korea discount, which had been narrowing with the Korean government’s value-up program, is once again widening across key valuation indicators such as PER, PBR, and cash flow.

Robeco concluded, "This can be interpreted as a potential investment opportunity for selective overweighting in quality stocks," adding that "the fact that Korea's leading companies play a pivotal role in the global AI industry is also expected to be a positive factor going forward."

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