Global Tech Rut Halts Rally: Kospi Plummets 5% Amid Retailer Outcry Over Leveraged ETF Risks

Global Tech Rut Halts Rally: Kospi Plummets 5% Amid Retailer Outcry Over Leveraged ETF Risks​

South Korea's benchmark market, the Kospi, experienced a sharp correction on Thursday after snapping its two-day gaining streak. The index plunged more than 5%, settling at 6,238 as heavyweights like Samsung and SK Hynix saw significant declines amid widespread global tech weakness. This massive downturn has significantly impacted the nation's retail investor base.

Steep Correction Hits Korean Equities Amid Tech Global Rout​

The Kospi sank substantially as market participants faced a pervasive tech rout that was also evident on Wall Street. Shares of chip giants tumbled, with Samsung seeing a drop exceeding 5%. SK Hynix tanked nearly 7%, contributing to the market slide.

Foreign investors were actively net sellers in the Korean market, offloading shares valued at $108.5 million. This selling pressure occurred as global indices faced volatility, with Nasdaq falling nearly 1% following earnings reports from companies like Advanced Micro Devices and SpaceX.

Concentration Risks Fuel Retail Market Panic​

The current correction highlights deep structural issues within the South Korean stock market. The rally earlier this year had seen the Kospi climb over 122%, reaching a lifetime high of 9,386 in June after being crowned the world's best-performing stock market due to the global AI frenzy.

However, the reliance on just two chipmakers—Samsung Electronics and SK Hynix—which together account for just over half of the benchmark Kospi, created acute concentration risk. This fragility was amplified by single-stock leveraged ETFs linked directly to these firms.

Retail investors have emerged as the most grievously affected group. Many local traders who had invested through borrowed money view the market not as an investment vehicle but as a casino. Some are now vowing never to invest in the Korean stock market again, citing fear and amplified losses from the leveraged products.

Government Acknowledges Market Instability​

The heightened volatility has forced official acknowledgment and intervention regarding financial instruments. During a parliamentary session last month, Finance Minister Koo Yun-cheol apologized for the introduction of single-stock leveraged ETFs, stating that these products had not been carefully considered enough.

The government is currently reviewing market stabilization measures, including adjustments to the regulations governing these funds. Separately, President Lee Jae Myung recently commented on the nation's stock market, noting that "Our domestic stock market is quite unstable," suggesting time and fluctuation are required for a stable course correction.

Nomura: Future Rerating Hinges on Corporate Actions​

International brokerage Nomura attributes the heavy correction primarily to aggressive selling by foreign investors, slowing institutional support, and the volatility generated by rapid growth in leveraged ETFs. Despite resilient corporate fundamentals, these factors have amplified market risk.

Looking ahead, Nomura believes the next leg of Korea's rerating is tied to structural demand. They project that corporate share buybacks and treasury-share cancellations by large-cap companies will serve as a new source of support. This action could help the Kospi re-rate towards a target range of 10,000–11,000.