South Korea's retail investors, known for their risk appetite, faced a harsh reality in July as the Kospi index experienced a dramatic 22% drop, the steepest since the global financial crisis. Despite an 18% rebound, retail traders sold a record amount of shares, leading to widespread frustration and criticism of government policies.
The volatility in the $3.9 trillion Kospi market has led some investors to compare it to a casino, with many blaming President Lee Jae Myung's stock-market reform initiatives. These reforms, which included the introduction of single-stock leveraged ETFs, were intended to broaden investment opportunities but have instead been criticized for amplifying market swings. Retail investors poured approximately 78 trillion won into Kospi shares over May and June, only to be caught off guard by July's turbulence.
The introduction of leveraged ETFs in late May was meant to stem outflows to similar products abroad. However, these ETFs have become a focal point of criticism. Trading in Kospi stocks was halted four times in July, marking a record for circuit-breaker suspensions. Investors like Lee Jung-min, who took a 50 million won loan to trade stocks, expressed discontent, stating that the market has turned into a casino.
“That was the era of the Kospi mania. I got completely swept up in the frenzy. Now, I’m honestly scared. I’ve engraved two rules in my mind now. First: don’t invest in the Korean stock market. Second: follow the first rule.”
Kim Han-kyung, Seoul resident
The market's volatility is partly attributed to concentrated bets on AI-linked stocks like Samsung Electronics Co. and SK Hynix Inc., which together account for over 50% of the Kospi. Despite a 21% slump in Samsung's shares and a 35% drop in SK Hynix's stock in July, both have seen significant gains since the start of 2025.
Authorities have responded by temporarily halting new listings of single-stock leveraged ETFs and pledging additional measures to stabilize the market. However, many investors feel these actions are too late, as the damage has already been done.
“The government put fuel into the fire with those leveraged ETFs. I think it’s wrong how they turned the stock market into a casino.”
Lee Jung-min, retail investor
Background
South Korea's stock market has been a focal point for retail investors due to its association with major tech companies like Samsung and SK Hynix. The recent volatility highlights the risks associated with leveraged investments and the impact of government policies on market stability.
Looking forward, the AI boom that initially fueled Korea's stock rally remains a key factor. However, rebuilding investor confidence may take time, as retail traders remain wary of the market's potential for swift downturns.
