Kospi Plunges Up to 12.6% as SK Hynix Falls Record 17%, South Korean Officials Apologize Over Leveraged ETFs

Since single-stock leveraged ETFs launched in South Korea on May 27, retail investors have poured 14 trillion won ($9.7 billion) into products tied mostly to Samsung Electronics and SK Hynix, according to KB Financial Group. That bet collapsed Wednesday, July 29, when the Kospi index plunged as much as 12.6% intraday before paring losses to around 6%, according to Channel News Asia and BlockBeats.

SK Hynix, one of the two chipmakers whose stock dominates the Kospi's market cap alongside Samsung, fell nearly 20% at its worst before settling to roughly an 8% decline, according to BlockBeats. That's the company's largest single-day drop on record, and it came despite SK Hynix reporting record earnings the same day. Samsung Electronics fell as much as 14% in Seoul trading, according to Channel News Asia.

The carnage forced South Korea's top financial officials into an unusual public reckoning. Finance Minister Koo Yun-cheol apologized in a parliamentary session Wednesday after a lawmaker demanded it, saying he was sorry for introducing single-stock leveraged ETFs without careful consideration, according to Reuters as reported by CNBC and confirmed by Channel News Asia.

At a separate hearing, Financial Services Commission chairman Lee Eog-weon echoed the apology. "As the ultimate authority responsible for the financial markets, we feel sorry that we have fallen short in properly meeting the public's expectations" over regulating the product, Lee told the hearing, according to Channel News Asia.

How Bad the Losses Actually Are

The leveraged products are designed to deliver twice the daily percentage move, up or down, of a single underlying stock. That math works brutally against holders during a sustained selloff, and it has.

The KODEX SK Hynix Single Stock Leverage ETF has fallen more than 80% since its June 23 peak, according to LSEG data cited by CNBC. The equivalent Samsung-tracking product has dropped almost 75% from its June 3 peak. Those are declines in the ETF share price itself, not a claim about what any individual investor personally lost, since entry and exit points vary.

Korean retail investors bought aggressively into these products relative to foreign money. Net purchases from domestic retail investors hit roughly 14 trillion won versus about 2 trillion won from foreign investors, according to KB Financial Group figures reported by CNBC. That imbalance is now central to the political anger in Seoul, since it means the pain is landing disproportionately on ordinary Korean households rather than institutional or foreign capital.

What Regulators Are Considering

Lee told the National Assembly's Political Affairs Committee that the Financial Services Commission is looking at restricting access to single-stock leveraged ETFs to professional investors only. "If necessary, there is a way to raise [the investment requirements] up to professional investors," Lee said, according to the Seoul Economic Daily as cited by CNBC.

He also floated cutting the leverage multiple itself. "Since [the tracking multiple of] two times is too large, lowering it would likely have an effect in terms of easing volatility," Lee said. Any change to the multiple would require legislation, he added, and the FSC intends to consult investors through beneficiary meetings as that process moves forward.

A product that doubles daily volatility on the two stocks that make up nearly half the Kospi's market cap is inherently going to amplify a selloff once one starts. Critics of the original approval argue that regulators moved to permit these instruments in a market already running hot on AI-chip enthusiasm without stress-testing what a rapid unwind would look like for retail holders who don't fully grasp daily-rebalancing decay.

At the same time, nobody forced retail investors to lever up on two stocks at the peak of an AI rally. Leveraged single-stock ETFs are not exotic derivatives hidden in fine print. They disclose the 2x