South Korean stocks have experienced sharp volatility recently, while Taiwan’s stock market has remained relatively stable. Hsien-Ming Lien, President of the Chung-Hua Institution for Economic Research (CIER), stated that the difference in the two markets’ resilience during steep declines reflects more than their respective daily price limits. Margin call mechanisms and the availability of leveraged products also play critical roles. Trading rules that amplify leverage can accelerate margin calls and forced liquidations, triggering cascading selling pressure and intensifying market volatility.
Lien noted that the Taiwan Stock Exchange Capitalization Weighted Stock Index has risen steadily this year, surpassing 46,000 points by midyear and positioning Taiwan as the world’s fifth-largest equity market by capitalization. South Korea’s KOSPI also achieved record highs, propelled by semiconductor firms such as Samsung Electronics and SK hynix. However, circuit breakers were triggered 13 times in the South Korean market from the beginning of the year through the end of August, highlighting the significant risks associated with market volatility.
Different Daily Price Limits Affect the Spread of Margin Trading Risks
Lien stated that one key difference between the Taiwanese and South Korean stock markets lies in the interaction between daily price limits and margin calls triggered by collateral maintenance requirements. South Korea’s daily price limit is 30%, compared with 10% in Taiwan. During a market downturn, South Korean stocks can fall sharply in a single trading session, causing the collateral maintenance ratios for margin positions to drop rapidly below required thresholds. This increases the risk of margin calls and forced liquidations.
In contrast, Taiwan’s narrower daily price limit allows for a period of adjustment during sharp market declines. This reduces the probability that numerous leveraged positions will simultaneously breach margin call thresholds within a short timeframe, thereby helping to contain cascading forced liquidations and escalating selling pressure.
Single-Stock Leveraged ETFs May Amplify Procyclical Market Volatility
Another key difference is the availability of leveraged products for retail investors. Taiwan currently allows leveraged, inverse, and conventional index-tracking ETFs but does not permit single-stock leveraged ETFs. South Korea, by contrast, launched 2x leveraged and inverse ETFs linked to individual stocks such as Samsung Electronics and SK hynix in May 2026.
Lien explained that leveraged ETFs must dynamically rebalance their positions to maintain target leverage multiples. This process causes funds to increase exposure as share prices rise and decrease exposure as prices fall, thereby reinforcing procyclical trading. During periods of rapid market movement, such mechanisms can further amplify volatility in the underlying securities.
Heavy Retail Margin Borrowing Raises the Risk of Margin Calls and Forced Liquidations
Lien stated that market corrections may have a more pronounced impact when single-stock leveraged products coexist with high levels of margin trading. During the global semiconductor industry correction in July 2026, South Korea’s outstanding margin balance exceeded KRW 50 trillion. Single-stock leveraged products frequently experienced daily swings exceeding 10%, and a substantial number of investor accounts faced margin calls and forced liquidations.
Lien emphasized that stock market stability is determined not only by industry fundamentals and market sentiment but also by the effectiveness of trading systems in managing leverage risks. As financial products diversify and market volatility increases, regulators should continuously review the risk characteristics of leveraged products, margin trading regulations, and investor protection mechanisms. Achieving a balance between market development and risk control is essential for enhancing capital market resilience.
Source: Economic Daily News (October 26, 2026). Two Key Reasons Taiwan’s Stock Market Is More Stable than that of South Korea. Economic Daily News. https://money.udn.com/money/story/5607/9838140