Korean stock leveraged ETFs are like a casino, Lee Jae-myung orders to formulate countermeasures

Recently, the South Korean stock market has been as volatile as a casino, with single-stock leveraged ETFs being cited as one of the main reasons. On the 15th, South Korean President Yoon Suk-yeol ordered relevant agencies to quickly formulate countermeasures regarding this issue, and various ministries will hold urgent discussions on related topics in the near future.

According to reports from Yonhap News Agency, during a business report meeting held at the Blue House on the 15th, Yoon Suk-yeol expressed, regarding the single-stock leveraged ETFs of Samsung Electronics and SK Hynix, "Please quickly devise appropriate countermeasures."

The outside world believes that Yoon Suk-yeol is referring to the significant volatility in the South Korean stock market since the listing of 16 single-stock leveraged ETFs (including 2 inverse ETFs) on May 27, coupled with the recent weakening of stock prices for Samsung Electronics and SK Hynix, which has led to rapidly increasing losses for retail investors.

With the stock prices of Samsung Electronics and SK Hynix already experiencing considerable volatility, the addition of single-stock leveraged ETFs that track double the price fluctuations has amplified the volatility of the South Korean stock market to unprecedented levels. This year, the securities market has initiated 36 buy or sell Sidecar (intraday price stabilization measures), which is 12 times that of last year, with 18 of those initiated since May 27.

The KOSPI index, along with the stock prices of Samsung Electronics and SK Hynix, has experienced repeated surges and drops, leading some to criticize the South Korean stock market as being akin to a casino.

Financial regulatory authorities have also publicly expressed concerns about single-stock leveraged ETFs. Financial Supervisory Service Chairman Lee Bok-hyun stated at a press conference on the 22nd of last month, "I am reflecting on whether we should have spared no effort to prevent the approval of single-stock leveraged ETFs at that time; I truly regret it now." This is equivalent to admitting a policy error and indicates that measures for investor protection are being formulated.

On the 16th, a market situation inspection meeting was jointly held by the Ministry of Finance and Economy, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service, where related topics are expected to be discussed.

However, some opinions suggest that the volatility of the South Korean stock market should not be entirely attributed to single-stock leveraged ETFs. South Korean investment securities researcher Lim Dong-chan (phonetic) stated that leveraged ETFs amplify existing trends and do not reverse intraday trends. The recent increase in volatility should be viewed in conjunction with the intensified fluctuations of global semiconductor companies.

(Author: Yang Qifang; Main image source: pixabay)

Further Reading:

• Samsung and SK Hynix become ultimate retail investors! High leverage of 38 trillion financing triggers the largest liquidation wave in South Korean stock history.
• South Korean stock leveraged ETFs plummet, financial sector calls for strengthened investor protection mechanisms.
• South Korean Financial Supervisory Service: deeply regrets allowing Samsung and SK Hynix leveraged ETFs; 92% of holders are retail investors, and control measures are being formulated