Traders Looking for Next Leg in Global Stocks Rally Bet on Asia
(Bloomberg) — As the focus moves away from the Iran war, investors and strategists alike are looking for the next leg up in equities. Many are turning to Asia.
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Shares in South Korea and Taiwan have rallied the most in the world this month, with the surge in the Kospi index taking it up 78% for the year. The two markets have been key beneficiaries of the euphoria surrounding artificial intelligence, thanks to the growing dominance of giants Samsung Electronics Co., SK Hynix Inc. and Taiwan Semiconductor Manufacturing Co.
Equity-derivatives strategists are increasingly recommending trades to bet on more gains, just as traders chasing the rally push up the cost of options. The result: Implied volatility for stocks in Taiwan and Korea is rising along with those markets. It’s now hovering around peak levels versus the S&P 500 Index for both the Taiex and the Kospi 200 Index, with the Cboe Volatility Index sinking back below its one-year average.
“The strength of the move is producing extreme reversals from prior trends,” said Jun Gyun, a derivatives analyst at Samsung Securities Co., referring to the Korean market. That’s creating the “vol up, spot up” pattern, which could last for “some time, until a period of consolidation emerges,” he added.
Tech and AI are back with a vengeance, leaving behind markets such as India, which is heavily dependent on oil, has low exposure to AI and a currency near a record low. Its S&P BSE Sensex Index, down 9.3% this year, is the world’s second-worst performer.
Korean shares have been so in demand that Interactive Brokers Group Inc. started giving US retail investors direct access to the market. Meanwhile, the assets under management for leveraged exchange-traded funds have surged to a peak, and they’re likely to grow further as authorities have approved the local listing of those for single stocks, according to a recent JPMorgan Chase & Co. report that said the products keep the risk of “flow-driven overshoots alive.”
Samsung Securities’ Jun sees long-gamma strategies tied to rising volatility as favorable for Korean equities in the near term. Looking out three months or longer, he says traders should consider building short-gamma exposure in anticipation of a volatility peak.
