Tracking Korean ETFs have reversed earlier gains, turning lower. Southern Hang Seng Korea Technology (03431) fell 3.57% to HKD 9.04, Samsung C&T Global Semiconductor (03132) dropped 2.86% to HKD 55.76, and TR Korea (02848) narrowed its gain to 0.07%, trading at HKD 1,419.5.
According to market reports, South Korea's Minister of Economy and Finance, Joo Kyung-ho, convened an emergency market meeting on Wednesday evening, with all major financial regulatory bodies in attendance. Following the meeting, the Ministry of Economy and Finance issued a statement declaring that regulators plan to restrict retail investors' participation in leveraged ETF trading, including capping the maximum proportion of such products in individual portfolios and raising transaction costs.
Notably, retail selling has accelerated after SK Hynix reported weaker-than-expected earnings, casting doubt on the sustainability of the artificial intelligence investment boom. CLSA noted in a research report that the Korea Kospi index has plunged 44% from peak to trough, while the Kosdaq index has fallen 49%. The brokerage observed a "capitulation" pattern among retail investors, with leveraged ETF assets under management shrinking from a peak of USD 11.5 billion on June 25 to USD 4.6 billion by July 29.
CLSA stated that such declines would typically indicate systemic risk, but believes the current pullback is primarily driven by leveraged ETFs and new retail investors amplifying market volatility. HSBC reported that margin calls increased in July, but the forced liquidation of margin balances only accounted for 2% of the total, suggesting limited deleveraging. For single-stock leveraged ETFs, the asset class has contracted from its peak to approximately USD 10 billion, roughly one-third of its maximum value.
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