The Economist, a British weekly news magazine, has strongly criticized the speculative trading of South Korean retail investors and the risks of leveraged exchange-traded funds (ETFs), going so far as to call the South Korean stock market a “gambling den.” The publication pointed out that while financial authorities are belatedly moving to regulate, “getting investors out of the casino once they are hooked is never easy.”
The Economist assessed on the 23rd (local time) that “it has been quite a ride for South Korean investors,” noting that “the KOSPI index nearly tripled from the start of last year but has fallen by around 25% since June.” Citing a financial authority official who jokingly referred to retail investors as “addicted gamblers,” the magazine reported that “officials worry that speculative trading by retail investors is overheating the market.”
The artificial intelligence (AI) boom was identified as the backdrop for the market surge since last year. The combined market capitalization of semiconductor leaders Samsung Electronics (005930.KS) and SK Hynix (000660.KS) alone amounts to approximately $2 trillion, and at one point, trading in these two stocks accounted for over 80% of total trading volume on the South Korean stock market. According to the Korea Exchange, on the 22nd, out of a total transaction value of ₩34 trillion (approximately $23.0 billion) across the KOSPI and KOSDAQ markets, Samsung Electronics and SK Hynix accounted for ₩15.31 trillion (approximately $10.4 billion), or 45.05%. This remains nearly half of the market.
The Economist noted that while the performance of both companies is remarkable and investment demand is natural, the problem lies in the aggressive investment tendencies of retail investors. The magazine analyzed that retail investors have poured $10 billion (approximately ₩14.7 trillion) into leveraged ETFs this year alone, and because the nature of these products requires daily rebalancing—buying more when prices rise and selling when they fall—this structure exacerbates extreme market volatility. It singled out leveraged ETFs tracking single stocks like Samsung Electronics or SK Hynix as the riskiest investments.
The scale of this concentration is confirmed by statistics. According to KB Financial Group, since single-stock leveraged ETFs were listed on May 27, retail investors have net purchased approximately ₩14 trillion (approximately $9.5 billion), while foreign investors’ net purchases over the same period amounted to only about ₩2 trillion (approximately $1.4 billion). Losses have also been steep. The ‘KODEX SK Hynix Leveraged ETF,’ a representative product that tracks SK Hynix’s stock price with 2x leverage, has reportedly plunged about 70% from its all-time high in June (LSEG). The Bank of Korea also warned in a report last month that leveraged stock investments by individuals, centered on margin loans, have swelled to record levels and could amplify volatility during a market correction.
Key figures are summarized as follows:
IndicatorValueSamsung Electronics + SK Hynix Combined Market Capapproximately $2 trillionTrading Share of Two Stocks (July 22)45.05% (₩15.31 trillion / ₩34 trillion)Retail Net Purchases of Leveraged ETFs (Since May 27 Listing)approximately ₩14 trillionForeign Net Purchases of Leveraged ETFs (Same Period)approximately ₩2 trillionCircuit Breakers Triggered This Year7 times (out of 13 total historically)KODEX SK Hynix Leveraged ETF~-70% from June peak
Note: Trading share data from Korea Exchange; retail and foreign net purchases from KB Financial Group; ETF decline data from LSEG.
Indeed, JPMorgan identified leveraged ETFs as a primary cause of the KOSPI’s sharp decline, analyzing that deleveraging occurred during the recent correction. This year alone, circuit breakers—triggered when the KOSPI falls more than 8% from the previous day—have been activated seven times, more than half of the 13 total activations in history. Notably, five of these occurred after the launch of single-stock leveraged ETFs, presented as direct evidence of increased volatility.
Amid this situation, President Lee Jae-myung stated at a cabinet meeting on the 21st, “There are criticisms asking whether the existing measures will be sufficient,” and ordered financial authorities to swiftly and boldly prepare additional supplementary measures. President Lee noted, “Unfortunately, it was introduced right at the peak after a sharp rise, creating an ‘optical illusion’ as if this product itself severely worsened the problem,” but emphasized that “from the perspective of market participants, the policy inefficiency and damage feel much greater.”
Earlier, on the 16th, South Korea’s Financial Services Commission announced measures to raise entry barriers for investors in single-stock leveraged ETFs. Key points include raising the basic deposit requirement from ₩10 million (approximately $6,777) to ₩30 million (approximately $20,332), introducing mandatory pre-education, and increasing the minimum trading unit from 1 share to 20 shares. Additionally, new listings of single-stock leveraged ETFs will be banned. However, following President Lee’s directive, financial authorities are reportedly considering further raising the deposit requirement, establishing a re-education cycle requiring annual renewal, and introducing a prior investment experience requirement that would allow single-stock trading only for those with experience in index-based leveraged trading.
The measures announced by financial authorities and additional options under review are summarized below:
ItemJuly 16 Announcement (Effective Aug 5)Under Additional Review After Presidential DirectiveBasic Deposit₩10M → ₩30MFurther increase (some experts advocate ₩100M)New ListingsBan on single-stock leveraged ETFs—Mandatory Pre-EducationNewly introduced (one-time)Annual re-education cycleMinimum Trading Unit1 share → 20 shares—Prior Investment Experience—Only index-type experienced investors allowed for single stocksForeign & Institutional RegulationNoneRegulatory blind spot (experts demand supplementation)
However, questions about the effectiveness of these regulations are growing. Professor Seok Byung-hoon of Ewha Womans University’s Economics Department pointed out in an interview with YTN, “Reports indicate that foreign and institutional investors account for more trading volume in single-stock leveraged ETFs than individuals. The deposit criteria are completely meaningless for foreign and institutional investors, and they are not subject to mandatory education, so volatility will be difficult to reduce without restrictions on them.” Professor Seok also suggested banning the purchase of leveraged ETFs through margin trading as an effective measure.
Professor Kim Dae-jong of Sejong University argued, “The problem began with hastily launching the product without considering the speculative tendencies of domestic investors. There seems to be no other option but to raise the deposit level to ₩100 million (approximately $67,774) to fundamentally block new entry.” In fact, on the 20th, the first trading day after the financial authorities’ supplementary measures were announced, the transaction value of 16 single-stock leveraged products was ₩12.47 trillion (approximately $8.5 billion), an increase of ₩302.7 billion (approximately $205.2 million) from the ₩12.17 trillion (approximately $8.2 billion) recorded on the 16th before the announcement, demonstrating the limited psychological deterrent effect of the regulation.
Kim Yong-beom, Chief of Staff for Policy at the presidential office, explained that government policies, including the introduction of these leveraged products, have significantly reduced individual net capital outflows overseas. Chief Kim stated, “Last year, funds flowing out from individuals investing in overseas stocks, such as ‘Seohak Ants,’ reached $40 billion annually, but in the first half of this year, it drastically decreased to $2.8 billion.” However, President Lee reiterated, “That is about the government’s policy effects. Don’t stock market participants think they suffered damage because the decline was amplified by this? In any case, creating supplementary measures is our responsibility.”
Meanwhile, Financial Services Commission Chairman Lee Eok-won pointed to the inherent volatility of global semiconductor stocks as the fundamental cause of domestic market turbulence, explaining, “Not only ours, but U.S.-based SanDisk and Japan’s Kioxia are fluctuating even more severely.” While some in the market are even discussing the delisting of single-stock leveraged ETFs, this has been deprioritized by financial authorities due to concerns it could exacerbate market confusion.
The regulatory debate surrounding single-stock leveraged ETFs has unfolded rapidly from listing to implementation.
The Economist concluded by warning, “South Korean investors are already hooked on this attractive financial product. However much officials may now be regretting it, getting investors out of the casino is never easy.” With the authorities’ measures set to take effect on the 5th of next month, how to address the massive capital already deployed in the market and the regulatory gaps for foreign and institutional investors is expected to be a key variable for future market stability.