South Korea Weighs ETF Crackdown After Kospi Plunges by 32% From June Peak

South Korea considers tougher ETF rules after market rout

South Korean regulators are preparing additional measures to cool speculative trading after the country’s stock market suffered one of its sharpest corrections in years.

The government convened an emergency meeting on July 29, after the Kospi index slid roughly 32% from its June peak, driven largely by a steep sell-off in semiconductor stocks that had fueled the market’s rally earlier this year.

Finance Minister Koo Yun-cheol admitted regulators failed to fully assess the risks associated with the launch of leveraged single-stock exchange-traded funds (ETFs) while issuing a public apology as lawmakers questioned the government’s oversight.

SOUTH KOREA 🇰🇷 CALLS EMERGENCY MEETING AFTER KOSPI 40% ROUT FROM ITS JUNE PEAK

Finance Minister Koo Yun Cheol apologized for insufficient scrutiny of leveraged single-stock ETFs but said they were only one factor behind the turmoil.

Authorities may impose retail investment caps… pic.twitter.com/viMxNhLyLH

— Wall St Engine (@wallstengine) July 29, 2026

The latest developments underscore growing concerns that retail speculation amplified the recent market downturn.

Leveraged ETFs magnified retail losses

The turmoil follows the introduction of single-stock leveraged ETFs in late May, products designed to deliver twice the daily performance of individual stocks.

The launch sparked a surge in retail participation, with domestic investors pouring an estimated 14 trillion won into the products, far outpacing foreign investor inflows of roughly 2 trillion won, according to KB Financial Group.

Many investors concentrated their positions in leveraged funds tracking South Korea’s semiconductor giants, including SK Hynix and Samsung Electronics, hoping to capitalize on the global artificial intelligence boom.

Instead, the sharp reversal in chip stocks turned those bets into heavy losses.

The KODEX SK Hynix Single Stock Leverage ETF has plunged more than 80% from its June peak, while the leveraged Samsung Electronics ETF recorded a roughly 17% monthly drop, reflecting the speed of the broader semiconductor correction.

Authorities eye tighter investment restrictions

With losses mounting, regulators are weighing tougher safeguards for retail investors.

While addressing the National Assembly’s Political Affairs Committee in Seoul, Lee proposed that they could restrict access to leveraged single-stock ETFs exclusively to professional investors if upcoming regulatory changes fail to reduce speculative trading.

Authorities are also considering lowering the leverage offered by these products. Current funds typically provide 2x daily exposure, but regulators believe reducing that multiple could help limit volatility and reduce investor risk.

According to local officials, any broader reforms would likely require legislative backing and consultation with investors before implementation.

July 31 deadline in focus

The government’s latest review comes as stricter trading rules are scheduled to take effect on July 31.

However, officials have warned that additional measures, including retail investment caps and tighter eligibility requirements, remain on the table if market conditions fail to stabilize after the new framework is introduced.

The emergency discussions reflect growing concern that excessive leverage has intensified market swings rather than improving liquidity.

Chip sell-off weighs on South Korea’s market

The broader weakness in the Kospi has coincided with a sharp correction across global semiconductor stocks.

After months of AI-driven gains, investors have increasingly taken profits amid concerns over elevated valuations, slowing demand expectations and uncertainty surrounding future earnings growth.

Given the heavyweight influence of chipmakers within South Korea’s benchmark index, the sector’s downturn has had an outsized impact on the overall market.

While policymakers hope tighter rules will restore stability, investors remain focused on whether the semiconductor sector can regain momentum. 

Until then, South Korea’s regulators appear determined to curb speculative excesses that have magnified losses during one of the market’s steepest declines this year.

Source:: South Korea Weighs ETF Crackdown After Kospi Plunges by 32% From June Peak