"Should Not Have Been Launched So Soon"! South Korean Finance Minister Apologizes for Leveraged ETFs; FSC Chairman Considers Restricting Access and Lowering Leverage Ratios
South Korean leveraged ETFs have become a "meat grinder" for retail investors! Two-times leveraged products linked to chip giants have plummeted by over 80%, wiping out nearly $10 billion in retail capital. South Korean regulators were forced to issue an urgent apology, planning to restrict access to professional investors only and reduce leverage ratios, leaving retail investors who entered at high levels trapped in a double predicament
The hasty listing of single-stock leveraged ETFs in South Korea is causing a rapid evaporation of retail wealth. As the South Korean stock market undergoes a sharp correction, tens of thousands of retail investors chasing the chip stock boom have suffered heavy losses, forcing regulators to publicly apologize and begin studying restrictive measures.
South Korean Finance Minister Koo Yun-cheol publicly apologized on Wednesday during a parliamentary inquiry, acceding to lawmakers' demands regarding the hasty launch of single-stock leveraged ETFs without sufficient prudent deliberation. Meanwhile, Lee Eog-weon, Chairman of the Financial Services Commission (FSC), stated that day that regulators are considering restricting access to these products to professional investors only and studying the reduction of leverage ratios.
According to data from KB Financial Group, since the launch of single-stock leveraged ETFs on May 27, net purchases by South Korean retail investors have reached 14 trillion won (approximately $9.7 billion), far exceeding the net purchase volume of foreign investors, which stood at around 2 trillion won. However, as the KOSPI index, led by chip stocks, plummeted by nearly 35% over the past month, these retail investors have become deeply mired in losses.
Shocking Declines: Chip-Linked Leveraged Products Suffer Particularly Severe Losses
The most concentrated losses are seen in single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix. Both products were launched against the backdrop of an AI-driven semiconductor rally and were once highly sought after as chip stocks surged.
According to LSEG data, the KODEX SK Hynix Single Stock Leveraged ETF—which aims to amplify the daily price fluctuations of SK Hynix by two times—has fallen by more than 80% cumulatively since its peak on June 23. The similar product tracking Samsung Electronics has dropped by nearly 75% from its peak on June 3.
The two-times leverage design amplified gains during the upward phase but also multiplied losses when the market reversed. The nearly 35% drop in the KOSPI index over the past month, through the leverage mechanism, transformed a normal market correction into devastating losses for retail accounts.
Regulators Under Pressure, Considering Access Restrictions and Lower Leverage Ratios
Facing accountability from the National Assembly, South Korea's financial regulatory system is under rare political pressure. Lee Eog-weon stated at the National Assembly's Committee on Strategy and Finance in Seoul, "If necessary, there are ways to raise the (investment threshold) to the professional investor level."
Regarding leverage ratios, Lee indicated that regulators could study reducing the amplification multiple of single-stock leveraged products once legislative conditions are met. He explicitly stated, "Since two times (the tracking multiple) is too high, lowering it could be effective in mitigating volatility." He further added that while studying relevant legislation, regulators would simultaneously explore how to protect investor rights, including through methods such as beneficiary meetings.
These statements imply that existing holders face the risk of fundamental adjustments to the product structure in the future, which may narrow the market liquidity and investor base of the relevant ETFs.
Heavy Retail Positioning, Highly Uneven Risk Distribution
The core contradiction in this leveraged ETF turmoil lies in the fact that risk bearers are highly concentrated among retail investors. According to KB Financial Group data, net purchases by local South Korean retail investors amounted to 14 trillion won, approximately seven times the net purchase volume of foreign investors.
This imbalanced pattern reflects South Korean retail investors' highly optimistic expectations for the semiconductor sector and their insufficient understanding of the risk attributes of leveraged products. Single-stock leveraged ETFs were officially listed on May 27, and less than a month later, the market began to reverse. For most retail investors who entered at high levels, the time available to react was extremely limited.
As regulators announce the possibility of significantly tightening access conditions, these retail investors will face a double predicament: on one hand, they hold substantial unrealized losses; on the other, exit channels may be further constrained by policy measures.
