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Photo = Korea Exchange |
[Alpha Biz= Kim Sang Jin] Bank of America (BofA) has raised concerns about a potential bubble in South Korea’s stock market, citing extreme volatility and speculative trading activity.
According to MarketWatch on March 11, BofA equity strategists said the KOSPI’s recent sharp swings—falling 12% before rebounding 10%—mirror periods of extreme market instability, such as during the Asian financial crisis, the dot-com bubble, and the 2008 global financial crisis.
The volatility followed tensions stemming from the U.S.–Iran conflict. The KOSPI fell 7.24% to 5,791.91 on March 3, then plunged 12.06% the next day to 5,093.54, marking one of the market’s steepest declines on record. The index then rebounded 9.63% on March 5, highlighting unusually large price swings.
BofA said its proprietary Bubble Risk Indicator suggests the Korean market is approaching extreme bubble territory.
The indicator aggregates asset returns, volatility, momentum, and market fragility into a single score ranging from 0 to 1, with values closer to 1 indicating a higher probability of a market bubble.
According to BofA strategists, the KOSPI’s bubble risk score is currently near 1, indicating an extreme level of speculative risk. They also noted signs of overheating in the options market.
The bank pointed to heavy retail investor activity in leveraged and inverse exchange-traded funds (ETFs) as a factor amplifying the bubble risk.
BofA added that, based on analysis conducted before the recent sharp swings in global oil prices, South Korea’s stock market showed the highest bubble risk among major asset classes, even exceeding levels observed in traditionally speculative assets such as gold and silver.
알파경제 Kim SangJin Reporter(letyou@alphabiz.co.kr)
