South Korea’s benchmark KOSPI index has fallen roughly 30% from its June 19 peak, erasing gains accumulated during a speculative frenzy that saw retail investors borrow at record levels to chase leveraged exchange-traded funds.
Margin loans outstanding reached 29.8 trillion won ($21.5 billion) on June 24, up 75% from the start of the year, according to the Korea Financial Investment Association. The surge in leverage coincided with the launch of single-stock leveraged ETFs in late May, which drew in new participants amid a broader retail investment boom. Sales of books on domestic stocks more than tripled between January and June, data from online retailer Yes24 showed.
The market’s volatility has exacted a heavy toll. The VKOSPI volatility gauge, often called Korea’s ‘fear index,’ hit 97.99 in early July, its highest level since the gauge’s 2009 inception. Citi estimated in a July 28 note that retail investors had lost $38.7 billion on leveraged ETFs alone. Two high-profile cases illustrate the extremes: a 34-year-old investor earned a 66% return at the market’s peak, while an 80s retiree reported a 35% loss during the rout.
Psychiatrists report a sharp rise in patients seeking help for stock-related distress. Park Jongsuk, a Seoul-based psychiatrist, said his caseload has increased from seven or eight daily patients last year to an average of 11 per day since June. The emotional fallout has extended beyond trading floors, with YouTuber Jeon Suk-jae—who has 3.7 million subscribers—warning that many participants may become so traumatized they abandon investing altogether.
Regulators are now under scrutiny for allowing the rapid expansion of high-risk products. Kim Yong-beom, presidential chief of staff for policy, questioned why single-stock leveraged ETFs, which are permitted on the NASDAQ, were allowed in Korea. The Financial Services Commission stated it had examined risk factors at each stage of approval, though no standardized procedure exists for such reviews.
The market’s concentration risk has also come into focus. Samsung Electronics and SK Hynix together account for 53% of the KOSPI’s total value, leaving the index vulnerable to swings in the chip sector. Analyst Huh Jae-hwan of Eugene Investment Securities noted that heightened volatility has deterred foreign investors, who may delay long-term commitments until corporate governance improvements take hold.
President Lee Jae Myung’s administration has pledged to stabilize markets, but the damage to investor confidence appears significant. For many, the episode has left lasting scars—one retiree, Dalbo Park, said he would never invest in the KOSPI again after three decades of trading.
The episode underscores the broader risks of rapid financial innovation without safeguards, as Korea’s retail-driven market grapples with the aftermath of its speculative surge.
