South Korea's KOSPI has plunged into a bear market, shedding 25% of its value since late June, yet remains up roughly 60% this year, making it the world's best-performing major equity market. This spectacular ascent and subsequent reversal have been largely driven by retail investors using significant margin debt, particularly in semiconductor giants Samsung Electronics and SK Hynix, which together account for over half of the KOSPI. The market's high concentration in these two stocks amplifies volatility, with sharp moves in either company significantly impacting the broader index. For instance, a 14% drop in Samsung in Seoul recently contributed to an 8% decline in the KOSPI on a single day.
The volatility has been intensified by the launch of 16 single-stock leveraged ETFs tied to Samsung and SK Hynix in May. These products, which double daily price movements, have attracted substantial speculative demand, leading to 17 market safeguards (sidecars) being triggered since their debut, for a total of 35 activations this year. Financial regulators, including the Financial Supervisory Service and the Financial Services Commission, are on high alert, acknowledging the difficulty in controlling risks due to structural market issues. Measures under consideration include raising the minimum investment requirement for single-stock leveraged ETFs from 10 million won ($6,700) to 30 million won ($20,000) (cash only) and restricting trading to batches of 20 shares to reduce turnover. The listing of new ETFs tracking these chipmakers will also be temporarily suspended.
Retail investors have embraced these leveraged products, with their borrowed investments in KOSPI shares reaching 28 trillion won on July 14, slightly down from a record 29.8 trillion won on June 24. Foreign investors, conversely, have pulled nearly $110 billion from South Korean equities this year. The allure of quick gains from volatility has drawn investors, some of whom, like a 24-year-old college student, saw their 10-20 million won ($7,000 to $13,000) investments leveraged into 300 million won, only to see it evaporate. The KOSPI's volatility index hit a record high of 97.99 on June 29, compared to 28.85 at the end of 2025, underscoring the extreme instability. Analysts warn that while the current downturn may present a buying opportunity for some, the high exposure to chip stocks remains a volatile game.
