Key facts
- South Korean retail investors are deeply frustrated by market volatility and have vowed to stop investing.
- The Kospi index suffered a 22% loss in July, its worst monthly performance since the global financial crisis.
- Trading was halted four times in July due to circuit breakers, a record for the index.
- Retail investors had heavily invested in the market in May and June, encouraged by government initiatives.
- Single-stock leveraged ETFs are being blamed for amplifying market swings and contributing to investor losses.
South Korean retail investors, known for their risk appetite, have been severely shaken by a dramatic reversal in the Kospi index during July. The market experienced its steepest monthly loss since the global financial crisis, with a 22% decline, and saw trading halted four times due to circuit breakers. This volatility has led many retail traders to vow never to invest in the Korean stock market again, with some comparing it to a casino.
Frustration is high on social media, with much of the blame directed at the government. Investors were encouraged by President Lee Jae Myung's stock-market reform initiatives and the debut of single-stock leveraged ETFs, which offered the potential for amplified gains. This led retail investors to pour approximately 78 trillion won (US$54.2 billion) into Kospi shares in May and June. However, the index's wild swings in July left many "sucker-punched."
The leveraged ETFs, introduced in late May to broaden investment opportunities, are now a focal point of criticism and are being blamed for amplifying market volatility. One investor described the situation as the government "put fuel into the fire with those leveraged ETFs" and turned the stock market into a casino.