After a hasty introduction of single-stock leveraged ETFs earlier this year, South Korea's finance minister issued a formal apology on Wednesday. A massive wave of retail investors piled into these products, only to suffer severe losses following a sharp downturn in chip stocks. Regulators are now considering restricting ordinary citizens from trading such products, limiting participation to professional investors only.
On Thursday, July 17, 2025, South Korea's finance minister nominee, Koo Yun-cheol, attended a parliamentary hearing at the National Assembly in Seoul. Koo, who previously served as First Vice Minister of Economy and Finance and head of the Office for Government Policy Coordination, is returning to the top economic post as President Lee Jae-myung's new economic team faces multiple headwinds after months of political turmoil.
According to Reuters, South Korea revised its regulations this year, leading to massive losses for retail investors using leveraged ETFs, prompting the finance minister to formally apologize on Wednesday. Data from KB Financial Group shows that since the official launch of single-stock leveraged exchange-traded funds (single-stock leveraged ETFs) on May 27, South Korean retail investors have rushed in, with cumulative net purchases reaching 14 trillion won (approximately $9.7 billion). In contrast, foreign investors net purchased only about 2 trillion won.
This speculative trading initially helped propel the South Korean stock market to become one of the hottest in the world. However, the KOSPI index has now undergone a deep correction, with the chip sector leading the decline, leaving a large number of investors deeply in the red. Single-stock leveraged ETFs tied to the two chip giants, Samsung Electronics Co Ltd and SK Hynix Inc, have suffered the most severe losses. Previously, driven by the AI semiconductor boom, the shares of these two chip leaders surged, and the related leveraged products became extremely popular.
Refinitiv data shows that the KODEX SK Hynix 2x Leverage ETF, designed to deliver daily returns twice the movement of SK Hynix shares, has fallen over 80% from its high on June 23. Similarly, the identical 2x leverage ETF tracking Samsung Electronics has plunged nearly 75% from its peak on June 3.
The KOSPI index, which had been on a tear, has now come to a sudden halt. Amid widespread panic over chip stocks, the KOSPI has plummeted nearly 35% over the past month. The market sentiment has completely reversed in recent weeks, with fear hammering the index's heavyweight leaders.
Reuters reports that Finance Minister Koo Yun-cheol, in response to a request from lawmakers at a parliamentary session on Wednesday, offered a public apology, acknowledging that the implementation of single-stock leveraged ETFs was not sufficiently considered. On the same day, Financial Services Commission Chairman Lee Bok-hyun stated that regulators plan to tighten entry barriers, likely opening these products only to professional investors in the future, barring ordinary retail traders.
At a hearing of the National Assembly's Strategy and Finance Committee, Lee Bok-hyun told the Seoul Economic Daily, "If necessary, regulators can raise the investment threshold to allow only professional investors to participate." He added that if lawmakers complete the supporting legislation, regulators could also lower the leverage ratio of single-stock products. "The 2x leverage is too volatile; lowering the leverage ratio would likely help mitigate sharp market swings," Lee said. "As we push forward with the relevant legislation, we will fully consider the rights of ordinary investors through mechanisms such as beneficiary meetings."
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