Minister apologizes as Korean leveraged ETF investors nurse heavy losses amid chip stock rout

South Korea’s finance minister issued a formal apology on Wednesday following significant financial losses among retail investors. The issue stems from the introduction of single-stock leveraged exchange-traded funds earlier this year. These products promised high returns during the recent surge in semiconductor stocks, but market volatility has led to a sharp reversal for many participants.

Data indicates that retail investors poured approximately 14 trillion won into these products. This volume dwarfed the 2 trillion won investment from foreign sources. As the Kospi index underwent a correction of nearly 35 percent over the last month, the high-leverage nature of these ETFs accelerated the financial damage. Holders of funds linked to chip giants like Samsung Electronics and SK Hynix faced the most severe impact, with some products losing more than 80 percent of their value from recent peaks.

The government is now reevaluating its oversight of these speculative instruments. Financial authorities are considering stricter access protocols, potentially limiting these leveraged products to professional investors only. There is also discussion regarding the reduction of leverage multipliers to mitigate future volatility. Regulators emphasized the need for better protection for retail participants, acknowledging that the initial rollout did not account for the risks inherent in such aggressive trading products.

The current situation marks a turning point for the local market, which previously experienced one of the hottest equity streaks globally. With the index now showing signs of stress, officials are moving to correct the regulatory environment to prevent similar outcomes in the future. Lawmakers are in discussions to prepare the necessary legislation to tighten these requirements.