SEOUL – The most extreme phase of South Korea’s stock-market turmoil may be over after a historic selloff flushed out leveraged positions and regulatory curbs sent trading in some of the riskiest products plunging.

An index of volatility in South Korean shares fell to a two-month low last week, from a record high in June. The stabilisation followed forced liquidations that helped reduce outstanding margin debt, while tighter rules on leveraged exchange-traded funds also cut trading and assets in products tied to chip giants Samsung Electronics and SK Hynix.

The moves suggest that some of the leverage-driven excess that amplified the extraordinary swings in local equities has now been cleared, with Morgan Stanley estimating the deleveraging process is more than half over.

The Kospi Index saw a drawdown of almost 40 per cent from its June high, while global funds have sold more than US$100 billion (S$130 billion) of shares in 2026, leaving emerging-market funds underweight on the country. 

Still, overseas money managers aren’t rushing back in. Volatility remains elevated even after its decline, leaving investors to weigh historically cheap valuations and a strong earnings outlook against the risk of further sharp swings.

“We are getting constructive, but we’re still not fully comfortable because volatility still remains high,” said Isaac Thong, senior investment director and manager of the Aberdeen Asian Income Fund in Singapore.

“If that potential expected return is high enough to justify the volatility, then things get more constructive. So we are getting toward that level.”

Surging turbulence in the Kospi drove a volatility gauge to a record-high 96.9 in June, up from 28.9 at the end of 2025. The exchange’s 20-minute trading halt – triggered when the market falls by 8 per ce...