South Korea's stock market, already known for its volatility, experienced further swings following the May 27 launch of 16 single-stock leveraged ETFs linked to major chipmakers Samsung Electronics and SK hynix. These new products fueled speculative demand, triggering 17 "sidecars" (market safeguards to halt trading during extreme volatility) since their debut, contributing to a total of 35 activations this year and earning the market the nickname the "Roller Kospi" [koreajoongangdaily.com]. The launch coincided with an AI-driven rally, magnifying the impact on a market heavily concentrated in these two chipmakers. Analysts noted that the introduction of these ETFs, while intended to stem capital outflow, was poorly timed and underestimated their ability to generate new, speculative demand [koreajoongangdaily.com].
Retail investors rapidly adopted these new offerings, with assets under management for the four largest single-stock leveraged ETFs reaching nearly 9 trillion won (approximately $6.7 billion) in less than two months. By the end of June, almost 700,000 people, roughly 5% of Korea’s retail investors, had completed the mandatory training to trade these products [koreajoongangdaily.com]. The allure of double-digit swings proved irresistible, drawing investors chasing quick gains despite the risk of substantial losses [koreajoongangdaily.com]. The volatility demonstrated the amplifying effect of leveraged products; for instance, SK Hynix's 15% plunge on one occasion necessitated leveraged funds to offload an estimated $5 billion of its shares to rebalance, representing about 18% of the day's combined traded value of SK Hynix shares and futures [economictimes.indiatimes.com]. Many retail investors faced significant losses, with stories of individuals losing over 45% on positions [koreajoongangdaily.com].
The increased volatility prompted swift regulatory action. Financial Supervisory Service Governor Lee Chan-jin expressed regret over approving the products, admitting difficulties in finding solutions due to structural market issues [koreajoongangdaily.com]. Measures under consideration and subsequently announced include tripling the minimum deposit for single-stock leveraged ETFs from 10 million won (approximately $6,700) to 30 million won (approximately $20,303) and requiring full cash payment, as opposed to previously allowing up to 70% with existing stock assets [koreatimes.co.kr]. Regulators also plan to temporarily halt new product launches, ban advertising for existing products, raise the minimum order size to 20 units from one, and strengthen risk disclosure and investor education. These changes are set to be implemented in August for the deposit requirement and November for trading units [koreatimes.co.kr]. The aim is to curb speculative trading and mitigate market disruption without overhauling market structure [economictimes.indiatimes.com].
