South Korean retail investors, once known for their risk-taking appetite, have seen their confidence shattered by the historic crash of the KOSPI index in July. From the streets of Seoul to social media, a wave of anger and regret is spreading, with some investors vowing never to touch Korean stocks again. This collapse is profoundly reshaping the investment psychology of South Korea's retail base.
In July, the KOSPI index plunged 22% in a single month, marking its steepest monthly decline since the global financial crisis. The index triggered circuit breakers four times during the month, setting a new record. Despite a strong 18% rebound at month-end, retail investors still recorded a net sell-off of KOSPI stocks on the day of the rebound, indicating that the recovery of confidence is far from complete.
According to a Bloomberg report on August 4, Seoul resident Kim Han-kyung stated that she has engraved two principles into her mind: "First: invest in the Korean stock market; Second: follow the first rule."
The trigger for this crash is partly attributed to the government-led introduction of single-stock leveraged ETF products. Retail investors accumulated purchases of approximately 78 trillion won (about $54.2 billion) in KOSPI stocks between May and June, only to suffer heavy losses during the July volatility. Market analysts warn that the deleveraging process is unlikely to end soon, and volatility in tech and semiconductor stocks could persist for months.
Frenzied Entry, Trapped in Losses
Since May, the South Korean stock market has been filled with optimism. President Lee Jae-myung's push for stock market reforms, coupled with the launch of single-stock leveraged ETFs at the end of May, provided retail investors with tools to amplify gains, quickly spreading FOMO (fear of missing out).
Amid this backdrop, a large number of retail investors rushed into the market, concentrating their bets on AI-related flagship stocks such as Samsung Electronics and SK Hynix. These two top global memory chip makers together account for more than 50% of the KOSPI index's weight, making them core beneficiaries of the global AI boom in the South Korean market.
However, the sharp reversal in July caught these new entrants off guard. The report notes that Kim Han-kyung first bought Korean stocks in early May. She recalled, "That was the era of KOSPI frenzy, and I was completely swept up by that wave. Now I'm really scared."
Lee Jung-min, a 40-year-old, took out a loan of 50 million won against his apartment to enter the market, also finding himself deep in losses. "The government poured fuel on the fire with those leveraged ETFs," he said. "They turned the stock market into a casino, and I think that's wrong."
From market data, the intensity of this crash cannot be underestimated. Samsung Electronics fell 21% in July, while SK Hynix dropped as much as 35%. Despite this, Samsung Electronics' stock price has still risen more than fourfold year-to-date from early 2025, and SK Hynix's gains are nearly tenfold. After this pullback, the KOSPI index's year-to-date performance still ranks among the top in major global markets.
Kim Dong Woo, a 33-year-old investor with over seven years of trading experience, said, "Such a high level of volatility indicates that the market is still not functioning normally."
Leveraged ETFs Become the Focus of Criticism
Single-stock leveraged ETFs, originally designed by South Korean regulators to broaden retail investment channels and curb capital outflows to similar overseas products, have become the focus of criticism during this crash, widely blamed for amplifying market volatility.
According to reports, Lale Akoner, a global market analyst at eToro Group in London, characterized this event as "a textbook case of crowded trades meeting leverage." She pointed out that the deleveraging process is unlikely to resolve within days, and investors should expect continued volatility in tech and semiconductor stocks over the coming months. However, she emphasized, "This should not be misinterpreted as a complete collapse of the AI investment thesis."
In response to market turmoil, South Korean authorities have taken action: they suspended the listing of new single-stock leveraged ETFs in mid-July and promised last week to introduce more measures to stabilize the market and limit retail exposure to such products. However, many retail investors and market participants believe these measures came too late.
Francis Tan, Asia Chief Strategist at India's Suez Wealth Management in Singapore, said the current environment presents a "significant challenge" for the South Korean government.
On social media, retail investor discontent is widespread, with most of the blame directed at the government. Jung Eui-jung, head of the Korea Shareholder Alliance, which has 64,000 members, stated bluntly, "Retail investors are furious with the government. The level of anger and criticism has reached its peak."
Analysts note that while the fundamentals of the AI boom driving the South Korean stock market remain unchanged, for many retail investors, the July experience has starkly revealed that the forces capable of generating excess returns can just as quickly devour them. The market may recover lost ground within months, but rebuilding retail investor confidence will likely take much longer.
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