Global investors signaled renewed interest in South Korean equities following a turbulent July marked by sharp fluctuations and significant foreign selling, with a particular focus on the country’s leading semiconductor companies. On July 31, foreign buyers snapped up 7.2 trillion won ($5 billion) worth of South Korean shares, more than doubling the previous record for net foreign purchases in a single day. This shift contrasts with the cautious sentiment among domestic retail investors, who have faced losses approaching 40 percent from market highs in June.

The recent volatility was largely driven by leveraged exchange-traded funds (ETFs) tied to heavyweight chipmakers Samsung Electronics and SK Hynix. Transactions linked to these funds saw assets plunge from roughly $50 billion in late June to $17 billion by the end of July, according to JPMorgan research. Analysts and market strategists attribute the sharp declines more to deleveraging and forced liquidations than to changes in corporate fundamentals.

“This was a leverage event, not an earnings event,” said Steve Lawrence, chief investment officer at Balfour Capital Group. Lawrence expressed optimism about Samsung Electronics, emphasizing the company’s solid business outlook. Despite shares nearly halving from their June peak, Samsung recently reported a 250-fold increase in chip profits coupled with robust demand driven by expansion in data centers. SK Hynix shares experienced a similar volatile trajectory but rebounded alongside Samsung in trading on the final day of July.

Market pressure also stemmed from forced selling by the struggling hedge fund Situational Awareness, whose liquidation process was accelerated after Citadel acquired a substantial portion of its remaining stock holdings. The unwinding of leveraged positions appears to be nearing completion. JPMorgan analysts, led by Rajiv Batra, head of Asia and co-head of global emerging markets equity strategy, noted that hedge funds have deleveraged to more sustainable levels, estimating about 90 percent of the process is complete.

The Kospi benchmark index more than tripled over the 12 months leading up to June’s peak, driven in part by the introduction of single-stock leveraged ETFs in May, which amplified both gains and subsequent declines. Volatility prompted some long-only investors to shy away from aggressive position management amid wide price swings. Short interest in South Korean stocks has moderated from a high of around 5.3 percent to approximately 4.3 percent, reflecting easing market stress.

Despite lingering risks and the sharp 17.9 percent one-day surge in the Kospi on July 31 unsettling some participants, industry experts see potential for recovery. Larry Hatheway, head of research at Franklin Templeton Institute, pointed out that cautious U.S. institutional investors might be prepared to reconsider select South Korean equities after recent turbulence. Historical data on emerging-market corrections suggests attractive median returns following durable market bottoms, lending some support to a cautiously optimistic outlook.