BoK flags risks from overseas S. Korean derivatives

Overseas hedge funds also added to market swings by building large leveraged positions in South Korean chip stocks and unwinding them during the sharp July selloff, BoK's report said. — Bloomberg

SEOUL: The Bank of Korea (BoK) is calling for stronger monitoring of overseas derivatives tied to South Korean chipmakers, warning their rapid growth risks amplifying domestic market swings as it cites leveraged bets by hedge fund Situational Awareness as a driver of recent volatility.

The South Korean market’s concentration in semiconductor stocks, foreign investors’ portfolio rebalancing and the buildup and unwinding of domestic leverage acted as drivers of the unprecedented volatility witnessed in Kospi from January to July, the central bank said in its semiannual Monetary Policy Report to parliament yesterday.