Goldman Sachs: Every 1% increase in Samsung and SK Hynix weighting could lead to approximately $2 billion foreign capital outflow from the Korean market

TechFlow reports, on June 30, Goldman Sachs' Timothy Moe and John Kwon pointed out that for every 1 percentage point increase in the combined weight of Samsung and SK Hynix in the Korean stock index, it could lead to foreign investors withdrawing about $2 billion from the Korean market, because the U.S. "Investment Company Act" requires portfolios to meet diversification thresholds. Goldman Sachs also stated that large amounts of capital flowing into leveraged ETFs, plus the increase in options trading and margin retail trading, created a structural environment, causing daily price fluctuations to far exceed the range supported by corporate fundamentals.

The growth in assets under management in Korea since last year mainly stems from investment returns, rather than new capital. As valuations climb, institutional investors' mechanical exposure to market volatility is also increasing—this is often related to hedging strategies. This means that even a mild market correction could trigger a series of forced sell-offs. (Jin10)