KOSPI Drops 27% After Single-Stock Leveraged ETF Approval

The KOSPI climbed to a record 9,386 on June 19 and then fell 27% to 6,820 on July 16. Regulators had approved single-stock leveraged exchange-traded funds on May 27 and later described those approvals as hasty, imposing restrictions on the products.

The index rose from levels of about 2,000–3,000 since September 2021 to above 3,000 in June 2025 after a new president was elected. It passed 5,000 in January 2026 and reached its peak on June 19. The rally coincided with strong investor interest in AI-related stocks and semiconductors, and a political pledge to boost domestic capital markets.

Regulators authorised trading of single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix on May 27. Officials said the approvals were intended to curb capital outflows and counter a weakening won as more domestic investors traded U.S.-listed shares. Days after market turbulence intensified, the Financial Services Commission and other supervisors acknowledged the approvals had been rushed. The governor of the Financial Supervisory Service said, “We should have blocked this, even if we had to lie down, and accepted the statement of the securities registration statement.” Authorities then urged asset managers to adopt self-regulatory measures, considered reducing product leverage and announced emergency steps including a temporary halt on new listings, higher investor deposit requirements and increases in the minimum number of shares that must be traded.

Market structure amplified price moves. Samsung Electronics and SK Hynix together make up about 55% of the KOSPI’s index weight, and the daily trading value of those two stocks accounts for more than two-thirds of equity turnover. Single-stock leveraged ETFs magnify daily returns and require issuers to rebalance holdings every trading day. Those rebalancing trades can create a feedback loop that intensifies price swings when trading is concentrated in a few large names.

Similar products launched earlier in Hong Kong. CSOP listed 2x and inverse leveraged products tied to Samsung Electronics in May 2025 and added a 2x SK Hynix product in October 2025. After SK Hynix listed American Depositary Shares on Nasdaq on July 10, U.S. issuers rolled out single-stock leveraged and inverse ETFs tracking the ADS. On its first U.S. trading day the ADS traded at a premium of more than 50% versus the domestic Korea Exchange share; the gap later narrowed to about 25%–40%. Conversion of ADS into domestic shares is restricted until the company’s scheduled domestic share listing on July 29; when two-way conversion opens, caps on conversion and issuance ceilings will remain in place.

Market volatility produced investor losses and public criticism of supervisory decisions. Senior officials and regulators held an F4 market review meeting on July 16 to assess further measures. Regulators said they will increase surveillance, control the pace of new product approvals and consider longer-term policy responses to concentrated market risks and cross-border product linkages.