After a historic 22% plunge in July that marked the KOSPI index's worst monthly performance since the global financial crisis, South Korea's notoriously risk-tolerant retail investors have been left reeling from heavy losses. The selloff, triggered in part by the government's introduction of single-stock leveraged ETFs, has eroded confidence so deeply that some are vowing never to invest in Korean stocks again.
One Seoul resident, Kim Han-kyung, says she has etched two rules into her mind: "First: don't invest in Korean stocks. Second: follow the first rule." The sentiment is widespread, with anger and regret spreading across social media and the streets of Seoul as investors grapple with the fallout from the crash, which saw the KOSPI trigger circuit breakers four times in a single month.
The turmoil stemmed from a wave of retail buying fueled by FOMO (fear of missing out) between May and June, when investors purchased about 78 trillion won ($542 billion) in KOSPI stocks. Many concentrated their bets on AI-themed giants like Samsung Electronics and SK Hynix, which together make up over 50% of the KOSPI index's weight. However, the market's sharp reversal in July caught these newcomers off guard, as Samsung Electronics fell 21% in a single month and SK Hynix dropped 35%. Despite the crash, Samsung Electronics' shares are still up over fourfold year-to-date, while SK Hynix has gained nearly tenfold, and the KOSPI remains among the top-performing major global markets this year.
Single-stock leveraged ETFs, introduced by the government in late May to broaden retail investment options and curb capital outflows to foreign products, have become a focal point of criticism. Market analysts describe the event as a "textbook case of crowded trades meeting leverage," with the deleveraging process likely to persist for months, keeping tech and semiconductor stocks volatile. Lale Akoner, a global market analyst at eToro, warned that while the selloff doesn't signal a collapse in the AI investment thesis, investors should brace for continued turbulence in the near term.
The South Korean authorities have responded by halting new listings of single-stock leveraged ETFs in mid-July and promising further measures to stabilize the market and limit retail access to such products. However, many retail investors and market participants believe these steps came too late. Francis Tan, an Asia chief strategist at India's Suez Wealth Management, said the current environment presents a "significant challenge" for the government. On social media, retail investors' frustration is palpable, with Jung Eui-jung, head of the Korea Shareholder Alliance, noting that "anger and criticism have reached a peak."
For many retail investors, the July crash has been a harsh lesson in the risks of leverage and concentrated bets, even amid a strong AI-driven bull market. While analysts suggest the market could recover within months, rebuilding investor confidence will likely take much longer.
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