As extreme volatility continues to grip the KOSPI, retail investors are abandoning South Korean stocks and flocking to products tracking major U.S. indices. Over the past week, U.S. index exchange-traded funds (ETFs) swept the top ranks of individual net buying, while domestic bets diverged between further KOSPI declines and a KOSDAQ rebound. At the same time, outflows are accelerating from the once-overheated single-stock leveraged ETF segment.

According to ETF Check on the 27th, ‘TIGER US S&P500’ topped individual net purchases over the past week with inflows of 120.3 billion won (approximately $82.1 million). It was followed by ‘KODEX US Nasdaq100’ (85.1 billion won / approximately $58.1 million), ‘KODEX US S&P500’ (65.1 billion won / approximately $44.4 million), and ‘TIGER US Nasdaq100’ (59.1 billion won / approximately $40.3 million). In total, 329.6 billion won (approximately $225.0 million) in retail funds poured into just these four major U.S. index products. Analysts attribute this shift to investors fatigued by South Korea’s roller-coaster market, who are pivoting toward the relatively less volatile and historically upward-trending U.S. market.

U.S. Index ETFIndividual Net BuyingTIGER US S&P500120.3 billion wonKODEX US Nasdaq10085.1 billion wonKODEX US S&P50065.1 billion wonTIGER US Nasdaq10059.1 billion won4 Products Combined329.6 billion won

Based on individual net buying over the past week, compiled by ETF Check.

Indeed, while the S&P500 fell just 0.66% and the Nasdaq 100 slipped 0.48% last week, the KOSPI dropped 1.91%. Although the weekly decline itself was not large, the index swung more than 3% on every trading day except one, sustaining extreme intraday volatility.

On a weekly basis, the decline appears to have moderated, but the monthly picture is starkly different. The KOSPI fell 4.58% in the first week of July, 9.85% in the second, 6.46% in the third, and 1.91% in the fourth, marking four consecutive weekly losses and a 21.07% plunge for the month. According to the Korea Exchange, sidecars — temporary halts on program buying and selling quotes — have been triggered 41 times on the KOSPI and 25 times on the KOSDAQ this year. Of these, 21 occurred in July alone, and from the 10th to the 24th, at least one of the two markets triggered a sidecar on every trading day except holidays, a streak spanning 10 consecutive sessions.

Retail investors’ outlook on the domestic market diverged between the KOSPI and KOSDAQ. Betting on further KOSPI declines, they net purchased 74.5 billion won (approximately $50.9 million) of ‘KODEX 200 Futures Inverse 2X’ and 68.8 billion won (approximately $47.0 million) of ‘KODEX Inverse’. Conversely, over 250 billion won (approximately $170.7 million) fled major KOSPI index products, including ‘KODEX Leverage’ (-129 billion won / approximately $88.1 million), ‘KODEX 200’ (-106.6 billion won / approximately $72.8 million), and ‘TIGER 200’ (-17.1 billion won / approximately $11.7 million). In contrast, investors bought 76.6 billion won (approximately $52.3 million) of ‘KODEX KOSDAQ 150 Leverage’, anticipating a technical rebound on the KOSDAQ.

CategoryETFIndividual Net Buying(+) / Selling(-)KOSPI Downside BetKODEX 200 Futures Inverse 2X+74.5 billion wonKOSPI Downside BetKODEX Inverse+68.8 billion wonKOSDAQ Rebound BetKODEX KOSDAQ 150 Leverage+76.6 billion wonKOSPI Index OutflowsKODEX Leverage-129 billion wonKOSPI Index OutflowsKODEX 200-106.6 billion wonKOSPI Index OutflowsTIGER 200-17.1 billion won

Meanwhile, the single-stock leveraged ETF market, which had concentrated retail funds, saw massive selling. The product individuals sold most heavily was ‘KODEX SK Hynix Single Stock Leverage’, with outflows of 159.2 billion won (approximately $108.7 million). Across four products — including ‘TIGER SK Hynix Single Stock Leverage’ (-78.8 billion won / approximately $53.8 million), ‘KODEX Samsung Electronics Single Stock Leverage’ (-44.9 billion won / approximately $30.7 million), and ‘TIGER Samsung Electronics Single Stock Leverage’ (-44.8 billion won / approximately $30.6 million) — total net selling reached 327.7 billion won (approximately $223.7 million). In stark contrast, ‘SOL SK Hynix Futures Single Stock Inverse 2X’, which seeks double the inverse return when SK Hynix falls, recorded net buying of 98.9 billion won (approximately $67.5 million), ranking second overall in net purchases.

Single-Stock ProductIndividual Net Buying(+) / Selling(-)KODEX SK Hynix Single Stock Leverage-159.2 billion wonTIGER SK Hynix Single Stock Leverage-78.8 billion wonKODEX Samsung Electronics Single Stock Leverage-44.9 billion wonTIGER Samsung Electronics Single Stock Leverage-44.8 billion won4 Leveraged Products Combined-327.7 billion wonSOL SK Hynix Futures Single Stock Inverse 2X+98.9 billion won

While directions diverged, trading volumes in this segment remain disproportionately large. As of the 24th, the combined trading value of just two products — ‘SOL SK Hynix Futures Single Stock Inverse 2X’ and ‘KODEX SK Hynix Single Stock Leverage’ — reached approximately 6.82 trillion won (approximately $4.7 billion), exceeding the entire KOSDAQ market’s trading value of 5.177 trillion won that day. The 16 single-stock leveraged and inverse ETFs based on Samsung Electronics and SK Hynix generated a combined trading value of 10.21 trillion won (approximately $7.0 billion), surpassing 60% of the trading value of all other roughly 1,100 regular ETFs combined. This is a classic “wag the dog” phenomenon, where the tail wags the body.

The KOSDAQ is paying the price for this concentration. Before single-stock leveraged products emerged in earnest, the KOSDAQ’s average daily trading value stood at around 15 trillion won (approximately $10.2 billion) at the end of May. It has since shrunk to about one-third of that level, and the KOSDAQ index has tumbled to 748.22 — roughly 39% below its April high of 1,226.18.

Losses have already materialized. The 14 single-stock leveraged products that debuted at a listing price of 20,000 won (approximately $13.65) are now trading between 10,635 won (approximately $7.26) and 13,015 won (approximately $8.88), representing losses of 34.93% to 46.83% from their listing prices.

This exodus from single-stock leveraged ETFs is attributed not only to heightened risk from increased stock volatility but also, more directly, to tighter regulatory measures by financial authorities. On the 16th, South Korea’s Financial Services Commission (FSC) announced plans to raise the base deposit requirement from 10 million won to 30 million won (approximately $20,479), exclude substitute securities from deposit calculations, and increase the minimum trading unit from 1 share to 20 shares. On the 24th, the FSC further announced it would fast-track the implementation of these measures — originally slated for August — to July 31, signaling a swift regulatory resolve. Earlier, on the 21st, President Lee Jae-myung had instructed the cabinet to “swiftly and boldly implement necessary countermeasures.”

ItemPreviousRevisedImplementationBase Deposit Requirement10 million won30 million wonJuly 31 (originally August)Eligible Deposit AssetsIncluding substitute securitiesCash onlyJuly 31Minimum Trading Unit1 share20 sharesExpedited review (originally November)LP Spread Management Obligation3%2%August 19

The practical impact is greater than the numbers suggest. Substitute securities such as stocks, ETFs, and bonds will no longer count toward the deposit requirement, and proceeds from securities sales will only be recognized as base deposits on T+2, when settlement is complete and actual cash arrives. “If an investor deposits 30 million won and invests the same amount, the product exposure is 60 million won, but across the entire account, it effectively amounts to just 1x leverage,” explained an asset management official.

Lee Sang-hyun, an analyst at Meritz Securities, commented, “Strengthening the base deposit requirement and expanding the minimum trading unit will help cool overheated trading and stabilize the market. While these may be seen as partial impediments to investment, they are minimum necessary measures for investor protection.”

However, the fund outflows have not been entirely one-directional. The combined net asset value of the 16 single-stock leveraged products shrank from 12.4 trillion won (approximately $8.5 billion) on the 15th, just before the measures were announced, to 8.9 trillion won (approximately $6.1 billion) on the 20th, the first trading day after. By the 23rd, it had rebounded to 10.8 trillion won (approximately $7.4 billion), as bargain-hunting inflows emerged following sharp price-driven declines in returns. As of the 24th, cumulative individual net buying in these products stood at 13.6 trillion won (approximately $9.3 billion), nearly 10 times the 1.4 trillion won from foreign investors. Seol Tae-hyun, an analyst at DB Securities, estimated that “the appropriate combined net asset value for single-stock leveraged products to prevent the wag-the-dog phenomenon is around 5.5 trillion won (approximately $3.8 billion),” and forecast that “if additional new funds are limited, the distortion will ease over time.”

Some market participants, however, voice concerns about potential adverse effects. They warn that if retail investors offload large volumes of existing KOSDAQ holdings to meet the higher deposit requirement, it could amplify downward pressure on the index. The FSC stated it is “closely monitoring market conditions following the implementation of the measures, and if the market does not stabilize, will consider additional supplementary steps after expert consultation.”