Korean President Faces Backlash Over Leveraged ETF Volatility
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Korean President Faces Backlash Over Leveraged ETF Volatility
- South Korea's single-stock leveraged exchange-traded funds (ETFs), launched in May 2026, have attracted over 7.3 trillion won (approximately $5.3 billion) in net inflows, predominantly from retail investors, despite significant losses in underlying assets.
- President Lee Jae Myung has ordered financial regulators to swiftly implement measures to address investor losses and market instability caused by these products, which amplify daily returns of major chipmakers like Samsung Electronics Co. and SK Hynix Inc.
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South Korea’s stock market has experienced considerable volatility following the May 2026 introduction of single-stock leveraged ETFs. These products, designed to offer twice the daily returns of underlying stocks such as Samsung Electronics and SK Hynix, were intended to attract retail trading activity to the domestic market. However, they have been linked to magnified price swings in the country’s leading AI-related chip stocks.
Since their launch, approximately 16 single-stock leveraged and inverse 2X ETFs tied to Samsung Electronics and SK Hynix have seen average daily turnover rates reach 126.9% through mid-July, significantly higher than the broader ETF market’s 42.7%. This intense trading, largely driven by retail investors, has been criticized for amplifying market volatility. For instance, between June 16 and July 16, 2026, while SK Hynix shares fell 19.49% and Samsung Electronics dropped 24.33%, their corresponding leveraged ETFs slumped even further, with some losing over 45% and 48% respectively.
In response to the escalating concerns and substantial investor losses, South Korean financial authorities have initiated a crackdown. On July 16, 2026, the Financial Services Commission (FSC) announced a suspension of new listings for single-stock leveraged ETFs, a ban on their advertising, and a tripling of the minimum cash deposit for new investments from 10 million won to 30 million won (approximately $20,000). President Lee Jae Myung has personally urged regulators to develop swift and effective supplementary measures to address the market instability and protect investors. The Financial Supervisory Service Governor, Lee Chan-jin, has publicly expressed regret over the approval of these high