South Korea's stock market has surged by 165% over the past year, which is not necessarily a bad thing, but the path to these highs has been exceptionally turbulent. For many local Korean investors, however, this extreme volatility is precisely the attraction.
Over the past year up to last Thursday's close, South Korea's KOSPI index experienced 77 trading days with single-day moves exceeding 2%. In contrast, the S&P 500 index saw such a move only 5 times. The KOSPI index recorded 44 days with swings over 3%, a phenomenon never seen in the US stock market, and it even moved more than 5% on 23 occasions.
These massive index swings are now largely driven by two heavyweight stocks: the chip giants Samsung and SK Hynix, which account for a significant portion of the index's weighting. Leveraged trading products are forced to buy on the way up and sell on the way down, further amplifying the price movements of these two stocks.
While the US market offers a more diverse range of investment products and similar leveraged funds have also grown rapidly, their size is not yet sufficient to allow leverage to dictate the overall market's direction.
South Korean regulators have even required prospective investors to pass a risk assessment before participating. Authorities, including the Bank of Korea, have issued warnings about this market disorder and are implementing various measures to curb speculative trading.
However, control is proving difficult. A local Korean version of a leveraged ETF was only approved for launch in May of this year. Before that, Korean investors had already been heavily buying similar leveraged products listed overseas.
Not all capital is enthusiastic about this speculative frenzy: foreign investors are gradually withdrawing from what they perceive as a casino-like Korean stock market. If this bubble bursts, the resulting losses are likely to be borne primarily by local investors. Maxence Visseau, founder of the macro and quantitative hedge fund Akivim Capital, stated he rarely sees a market where the attitudes of domestic and foreign capital are so starkly divided.
"Retail investors are entering the market precisely to gamble on these moves; high volatility is itself the selling point they are chasing," he said.
In the first half of 2026, net foreign capital outflow from the Korean stock market exceeded $100 billion, with a single-month outflow of $30 billion in June alone.
South Korea has a total population of just 51 million, yet its stock market has grown to rank among the world's largest. How much longer can local retail investors continue to increase their bets? And when a single-day crash turns into a full-year bear market, who will they sell their holdings to?
The US market is unlikely to face a scenario of massive foreign capital flight. Even so, the probable outcome of investment losses for Korean retail investors should serve as a warning to US regulators. With US stock valuations at historically high levels, high concentration in a few top stocks, and regulators having previously approved numerous high-risk financial products while removing various risk controls, the precedent set by the Korean market is one the US should heed.
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