South Korea's Stock Market Plunges 26% as Leverage ETFs Spark Turmoil in Two Months

According to Bloomberg, as of July 19, South Korea's leverage single-stock exchange-traded funds (ETFs), launched in May to track semiconductor giants Samsung Electronics and SK Hynix with 2x daily returns, have fueled market volatility despite initial optimism around stock market revival. The KOSPI index has fallen approximately 26% from its peak, with trading concentrated heavily on these leverage products and their tracked stocks accounting for over 70% of overall market turnover, as of July 15, the products held 7.81 trillion won in assets.

In response, South Korea's financial authorities halted new leverage ETF listings on July 16 and strengthened regulatory measures, raising minimum deposit requirements from 10 million to 30 million won and mandating enhanced investor education. Financial regulators indicated additional measures may follow if market volatility persists. Morgan Stanley notes the deposit increase may deter retail participation, though actual implementation requires 3-4 weeks.