Huo Xing Cai Jing reports that on August 4, Bloomberg columnist Shuli Ren stated that the core issue facing South Korea’s stock market is not a deterioration in corporate fundamentals, but rather mounting pressures on market structure, regulatory policies, and investor confidence. The report notes that earlier this year, South Korea’s stock market became one of the world’s most popular yet volatile markets, with the KOSPI plunging nearly 40% in just 27 trading days. Despite Samsung Electronics and SK Hynix continuing to benefit from AI chip demand, and the KOSPI’s forward 12-month P/E ratio falling to approximately 5.5x, investors may still choose to avoid the Korean market. Ren points out that one major reason for the market’s extreme volatility is regulators’ prior approval of single-stock leveraged ETF products. Because leveraged ETFs mechanically rebalance according to market movements—buying more during rallies and selling during declines—they further amplify market swings. According to Goldman Sachs data, during KOSPI’s peak in June, a 5% price movement in SK Hynix could trigger leveraged ETF rebalancing flows accounting for up to 40% of the stock’s daily trading volume. Additionally, the crash has severely impacted Korean retail investors: data shows that the most popular SK Hynix leveraged ETF plunged as much as 84% from its June high, triggering forced liquidations across approximately 360,000 accounts, 62% of which were held by individuals under age 35. Ren argues that while the South Korean government previously promoted capital market reforms to attract retail investment, it failed to adequately control leverage risks during the AI trading frenzy, eroding young investors’ confidence in the domestic market. She contends that South Korea’s current problem is not a lack of AI growth opportunities, but rather growing doubts about market rules, regulatory credibility, and trading stability. If high volatility persists, global capital may bypass South Korea’s stock market—even as the AI industry continues to thrive.
Bloomberg: South Korea's Stock Market's Core Issue Is Eroding Investor Trust
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Summary
Bloomberg reports that South Korea’s stock market is experiencing a sharp decline in investor sentiment, not just falling prices. The KOSPI index dropped nearly 40% in 27 days, despite strong fundamentals at companies like Samsung and SK Hynix. Leveraged ETFs are blamed for amplifying volatility, with ETF-driven trading volume accounting for 40% of SK Hynix’s total volume. A major leveraged ETF plunged 84% from its June high, triggering the liquidation of 360,000 accounts—62% of which were held by investors under 35. Regulatory gaps during the AI trading boom are undermining confidence in market stability.
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