1 hour ago
1
South Korea gave retail investors access to leveraged single-stock ETFs in late May. By mid-June, some of those products had cratered more than 20% in a single trading session. The country’s top financial regulator now says he regrets approving them.
How $9.1 billion piled in, then caught fire
South Korean regulators approved 2x leveraged ETFs tracking individual semiconductor stocks, specifically Samsung Electronics and SK Hynix, in April 2026. The products launched in late May. They were designed to deliver roughly twice the daily return of each underlying stock.
Retail investors piled in immediately. Assets in these ETFs ballooned from approximately $3 billion to around $9.1 billion within weeks. Retail traders accounted for about 92% of total holdings.
Then came mid-June. Concerns about the sustainability of AI spending, combined with wobbling memory chip prices, triggered a brutal selloff. Some SK Hynix-tracking leveraged ETFs dropped between 19.7% and 20.9% in a single day. The carnage was severe enough to trip circuit breakers on the KOSPI, South Korea’s main stock index. Over a 12-day stretch, domestic leveraged ETFs shed more than 2.6 trillion won, roughly $1.7 billion in paper losses.
The regulator’s mea culpa
Financial Supervisory Service Governor Lee Chan-jin didn’t mince words. On June 23, he publicly acknowledged that these were high-risk products and expressed regret over their approval. He noted that prior consumer warnings had failed to make a meaningful dent in investor behavior.
By early July 2026, retail investors accounted for roughly 70% of South Korea’s approximately $4.3 trillion market trading volume. Margin debt had hit record levels.
During the same turbulent period in early June through July, Korean retail investors net-purchased $1.65 billion worth of overseas leveraged products. The instinct, apparently, wasn’t to retreat from leverage after getting burned. It was to seek more of it elsewhere.
Why this matters beyond Seoul
The selloff was catalyzed by doubts about whether AI infrastructure spending can sustain its breakneck pace. Memory chip stocks like SK Hynix and Samsung have been direct beneficiaries of the AI boom, supplying high-bandwidth memory for data center GPUs.
When 92% of a volatile product’s holders are individual investors, and those investors are also trading on record-high margin, the potential for cascading forced liquidations is structural. With $9.1 billion in assets, daily rebalancing flows alone can move underlying stock prices, creating feedback loops that distort the very stocks the ETFs are supposed to track.
Governor Lee’s public regret suggests the political groundwork for tighter oversight is already being laid. That $1.65 billion in foreign leveraged product purchases means the risk appetite hasn’t evaporated. It’s just migrated.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
English (US) · 