As the KOSPI market faces simultaneous concentration in capital flows, stocks, and products, stock market volatility has soared to unprecedented levels. According to data from Korea Exchange on the 3rd, the KOSPI index closed at 6,595.45 on July 31, a sharp increase of 2,381.28 points (56.51%) from the year-end level of 4,214.17 last year. Over the same period, the KOSPI 200 Volatility Index rose from 28.85 to 84.35, an increase of 55.50 points (192.37%). The rate of increase in volatility was more than three times steeper than the index's rise.
In a market characterized by soaring volatility, an unprecedented situation occurred with 85 triggers. Circuit breakers, which temporarily halt all trading across the entire market, were activated 13 times in total: nine times on the KOSPI market and four times on the KOSDAQ market. Notably, on the 28th and 29th of last month, circuit breakers were triggered for two consecutive days across both major markets for the first time in history.
An executive at a securities firm stated, "In capital markets, phenomena such as concentration in semiconductors inevitably create bubbles, especially when retail investors engage in highly volatile trading." He added, "It is inevitable that significant losses have occurred." He further noted, "Long-term expansion of institutional investors, including measures such as regulations on leveraged ETFs and tax incentives, could serve as a way to prevent the worsening of retail investor losses."
The cause of the sharp rise in volatility is the concentration phenomenon. First, there is capital flow concentration. The proportion of retail investors in KOSPI trading volume, based on transaction value, is effectively more than three times higher than that of the United States. Stock concentration remains significant as well. Samsung Electronics and SK Hynix have grown to occupy an absolute level of market capitalization. Additionally, a product concentration phenomenon has emerged, with high investment focus on large-cap ETFs (exchange-traded funds).
Retail investors' unique tendency for short-term trading, combined with the negligible presence of large defensive stocks that could protect the market, makes it difficult to expect risk diversification effects. It is pointed out that these three concentrations are working together to widen stock market swings during volatile periods and increase investor losses. Market instability factors such as semiconductor peak-out theories and AI high-point arguments, along with the policy variable allowing individual leveraged ETFs (listed on May 27), have caused stock market volatility (KOSPI Volatility Index) to jump at three times the pace of KOSPI's rise.
Retail transaction value share reaches 35%... Three times that of the U.S.
According to Korea Exchange's investor transaction records, from January 1 to July 31 this year, the proportion of retail investors' trading volume in KOSPI, including ETFs (exchange-traded funds), was 40.1% (969.4931 billion shares). Over the same period, retail transaction value totaled 3.031 trillion won, accounting for 35% of the total.
This is estimated to be two to three times higher than that of U.S. retail investors in both trading volume and transaction value. The Securities Industry and Financial Markets Association (SIFMA) estimated that the proportion of U.S. stock market trading volume by individuals in 2024 was 17.9%. Korea's figure is 22.17 percentage points higher, or 2.24 times greater. In terms of transaction value, Korea's retail investors' share is 3.2 times that of the U.S., where the Securities and Exchange Commission (SEC) calculated the proportion of individual accounts in the U.S. stock market for the second quarter of 2025 using its Consolidated Audit Trail (CAT) system as 11%.
These statistics do not fully capture the actual influence of retail funds. When individuals purchase ETFs, liquidity providers (LPs) buy the underlying stocks and futures, but these transactions are recorded in statistics as "financial investment" capital flows. In other words, it appears as if institutional investors are buying. Furthermore, compared to institutional investors who typically have strong long-term investment tendencies, retail investors are evaluated as having less financial capacity and a stronger tendency to pursue short-term profits. This means that the proportion of short-term funds, which tend to exit first whenever the index wavers, is correspondingly high.
In capital markets, there are concerns that the high proportion of retail buying could accelerate volatility amid external factors such as concerns over slowing AI-related infrastructure investment by big tech companies and the possibility of U.S. interest rate hikes. In other words, retail investors may be the group suffering the most from stock market volatility.
Diversification effect disappears... On days when the stock market wavers, only the same stocks are sold
In the domestic stock market, Samsung Electronics and SK Hynix accounted for 51.23% of KOSPI's total market capitalization as of the closing price on that day. Out of the total listed market capitalization of 5,445.1937 trillion won in the entire KOSPI, just these two companies—Samsung Electronics (1,534.6481 trillion won) and SK Hynix (1,254.9859 trillion won)—occupy an absolute share.
This means that defensive stocks or small-cap stocks have a negligible presence. A securities industry official stated, "Since the performance of these two companies and the movement of U.S. semiconductor stocks directly affect the overall rise and fall of the KOSPI, it is difficult to expect a diversification effect where other stocks absorb and share the shock."
Product concentration plays a role in amplifying large-cap bias in the domestic stock market. When negative news about the semiconductor industry emerges, KOSPI 200 ETFs, semiconductor ETFs, and AI-themed ETFs are simultaneously requested for redemption, forcing liquidity providers of different products to sell the same stocks. Despite being different products, the selling volume converges on a single stock. Capital market experts worry that if the proportion of individual stocks or sectors becomes excessively high, the diversification effect of indices weakens while directional trends become amplified.
According to SK Securities analysis, as of May 11, the proportion of KOSPI 200 series within domestic equity ETF net assets was 44.5%. Sector and theme ETFs also primarily include top market capitalization stocks such as Samsung Electronics and SK Hynix.
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