Korean Stock Market Falls 30%, Retail Leveraged Investors Lose $38.7 Billion

The Korea Composite Stock Price Index (KOSPI) has fallen 30% from its peak on June 19, as the stock market frenzy driven by the AI boom and leveraged funds quickly turned into pessimism. The South Korean government had originally planned to eliminate the "Korea Discount" by introducing more investment tools and improving corporate governance, but the market's extreme volatility has raised questions about the effectiveness of these policies and investors' risk tolerance. On May 27, South Korean regulators allowed the listing of single-stock leveraged ETFs, requiring investors to complete one hour of training and deposit at least 10 million won. Samsung Electronics and SK Hynix both reached a market capitalization of $1 trillion, driving the KOSPI up more than double from its level in October last year, surpassing 8,000 points. Retail investors borrowed heavily to chase the AI trend, with the KOSPI's financing balance increasing by about 75% this year, reaching a record 29.8 trillion won on June 24. With Samsung Electronics and SK Hynix accounting for over 53% of the KOSPI's total market capitalization, related leveraged products further amplified market volatility. In early July, the Korean panic index VKOSPI rose to 97.99, the highest level since 2009. Citigroup estimated on July 28 that retail investors had lost $38.7 billion in leveraged ETFs. The market correction has brought social pressure, with the number of stock investment-related patients seen by psychiatrists in Seoul rising from an average of 7 to 8 per day last year to 11 per day on average since June this year. South Korean authorities have tightened restrictions on personal investment in leveraged ETFs, and analysts believe that excessive volatility may affect South Korea's goal of being included in the MSCI developed markets index.

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