The Kosdaq market has retreated to levels seen before President Lee Jae-myung’s administration took office, marking a grim milestone in its 30th anniversary year despite a series of government revitalization measures. Single-stock leveraged exchange-traded funds (ETFs) tied to major semiconductor names have siphoned liquidity from the broader market, rapidly eroding the Kosdaq’s fundamental strength, while the government’s structural reform policies appear to have effectively lost momentum.
According to the Korea Exchange on July 20, the Kosdaq index closed at 749.64, down 42.20 points, or 5.33%, from the previous session. At one point during intraday trading, the index slid to 747.93, setting a fresh low for the year. This is below the 750.21 close recorded on June 4 last year, when President Lee Jae-myung was inaugurated, and represents a plunge of more than 39% in just two months from this year’s high of 1,229.42 reached in May — effectively surrendering all gains accumulated since the administration took office in just over a year.
A sell-side circuit breaker was triggered on the Kosdaq market at 10:52 a.m., halting program sell orders. This marks the tenth such activation this year and the second consecutive trading day following the July 16 trigger. Approximately 30 minutes later, at 11:21 a.m., a sell-side circuit breaker was also activated on the main Kospi market, with both markets plunging in tandem. The Kospi also fell more than 4% intraday, threatening the 6,500 level, while Samsung Electronics (005930) and SK Hynix (000660) both recorded declines in the 4% range.
The primary causes of the Kosdaq’s downturn are identified as a sharp retreat by retail investors and a severe concentration of capital flows into large-cap semiconductor stocks. Retail investors have net sold more than 10 trillion won (approximately $6.7 billion) on the Kosdaq market this year, with their trading share plummeting to 69.2%. The retail share had been declining at an average annual rate of 0.7 percentage points from 95.3% in 2001 to 80% in 2024, but the pace has accelerated dramatically to an average of 5.3 percentage points per year over the past two years, falling to 74.7% in 2025 and 69.2% this year.
The capital that has fled the Kosdaq has concentrated overwhelmingly in single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix. Since their launch on May 27 through July 16, a total of 13.41 trillion won (approximately $9.1 billion) has flowed into 16 related ETFs. The top retail net-buy product was the “KODEX SK Hynix Single-Stock Leveraged” ETF, which attracted 4.9991 trillion won (approximately $3.4 billion), followed by “TIGER SK Hynix Single-Stock Leveraged” (3.4461 trillion won) and “KODEX Samsung Electronics Single-Stock Leveraged” (3.0757 trillion won). As a result of this supply-demand distortion, the “KODEX Kosdaq 150 Leveraged” ETF, which tracks twice the daily return of the Kosdaq 150 index, has seen its one-month return collapse to -44.85%.
Lee Jae-won, an analyst at Yuanta Securities, noted, “The Kosdaq has been hitting new lows since June, and the primary cause is estimated to be the launch of single-stock leveraged ETFs. The concentration of capital flows into large-cap stocks has intensified since the launch date.”
Criticism of the speculative nature surrounding leveraged products is also mounting. Bloomberg reported on the same day that “President Lee Jae-myung, who garnered support on pledges to maximize shareholder value and make South Korea a top investment destination, is now facing criticism that the nation’s stock market has degenerated into an excessively speculative ‘casino.'”
Retail investors’ aggressive bets extend beyond domestic markets to overseas venues. So-called “Seohak ants” — South Korean retail investors trading foreign stocks — net purchased $780.11 million worth of the Direxion Daily Semiconductor Bull 3X Shares (SOXL), which tracks three times the daily return of the Philadelphia Semiconductor Index. They also bought $477.89 million of SK Hynix ADRs (American Depositary Receipts), betting on a semiconductor rebound.
The government has moved decisively to stabilize the market. It has temporarily suspended new listings of single-stock leveraged ETFs until market conditions stabilize and will significantly raise the minimum margin deposit requirement from the current 10 million won (approximately $6,748) to 30 million won (approximately $20,245) starting August 5. Additionally, detailed measures for the “Kosdaq promotion-demotion system” will be formulated within the year for implementation early next year. The framework aims to selectively support quality companies while swiftly delisting underperforming ones. An enhanced delisting regime targeting stocks with market capitalizations below 20 billion won (approximately $13.5 million) and share prices below 1,000 won (approximately $0.67) that persist for a specified period has already been in effect since July 1.
Market participants are closely watching whether the government’s policy momentum and regulatory reforms can serve as a catalyst for a rebound. Analyst Lee Jae-won commented, “Given that improvements to the single-stock leveraged ETF regime and government policy momentum are ongoing, there is room to anticipate a reversal in the oversold Kosdaq index. If the relevant regulations are improved, we can expect an easing of the supply-demand distortion, and if policy effects materialize, there is also potential for retail investor funds to flow back into quality growth stocks with technological capabilities and growth prospects.”
Yoon Jae-hong, an analyst at Mirae Asset Securities, also assessed that “regulation of single-stock leveraged ETFs could partially alleviate the supply-demand concentration,” adding that “this is a time when additional Kosdaq revitalization policies are needed to improve investor sentiment.”
Meanwhile, volatility in South Korea’s stock markets has reached extreme levels this year. The total number of sell-side circuit breaker activations on the Kospi market has already set a new annual record at 38 as of July 20. In July alone, out of 13 trading days, there have been only three days on which neither a circuit breaker nor a sidecar was triggered. Expanding the scope to the past two months, market stabilization mechanisms have been activated roughly once every two trading days, reflecting persistently severe volatility.