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Foreign investors, net sellers of South Korean shares for the entire year, bought a record 7.2 trillion won, equivalent to $5 billion, on Friday as the KOSPI benchmark surged 17.9 percent in its biggest one-day gain. The buying signaled a shift in sentiment after a volatile July that saw the index drop nearly 40 percent from its June peak before rebounding sharply. Domestic retail investors, who suffered significant losses during the drawdown, expressed anger over the introduction of leveraged products that amplified the swings, according to a Reuters report. Korea’s Finance Minister Koo Yun-cheol issued a public apology for approving the single-stock leveraged ETFs without sufficient safeguards and announced measures to curb such instruments.
JP Morgan research indicated that assets in leveraged exchange-traded funds tied to Samsung Electronics and SK Hynix plunged from $50 billion in late June to $17 billion last week. Steve Lawrence, chief investment officer at US-based Balfour Capital Group, said, “This was a leverage event, not an earnings event.” Lawrence, who manages more than €400 million, added, “I’ll say it plainly: I’m a bull on Samsung here. It got sold for carrying half the index’s weight, not for anything in the business. The memory cycle and the AI capex story are intact, and the unwind is handing it to you at a discount the fundamentals don’t justify.”
Samsung Electronics reported a 250-fold jump in chip profits and maintained a solid outlook driven by data center demand even as its shares halved from June peaks before Friday’s recovery. SK Hynix followed a similar trajectory with both names rebounding in volatile trading. A Deloitte assessment found the global semiconductor industry is expected to reach $975 billion in annual sales in 2026 with growth accelerating to 26 percent that year on the back of artificial intelligence infrastructure expansion.
Figures from analytics firm EPFR show average allocations to Korea by active global emerging market funds climbed over 18 months before flattening in June as volatility intensified. JP Morgan analysts led by Rajiv Batra stated in a July note, “In Korea, we believe the leveraged ETF unwind is complete and hedge funds are ~90% through deleveraging — back to acceptable levels.” The analysts added that if a durable bottom forms, history is supportive with median 12-month returns after previous emerging-market corrections at about 28 percent.
Data from Goldman Sachs placed net foreign outflows from the KOSPI at roughly $62 billion as of late May while a separate Reuters tally showed foreigners sold a net 18.5 trillion won in July alone. Citi’s trading strategies desk estimated total losses for retail investors in leveraged ETFs at around $38.7 billion, further fueling frustration with policymakers. Pierre Hoebrechts, deputy chief investment officer at East Eagle Asset Management, said the concentrated exposure combined with local and foreign leverage created conditions for a significant correction.
Average short interest for Korea stood at about 4.3 percent, down from a recent peak of 5.3 percent, according to data from S3 Partners. Larry Hatheway, head of research at Franklin Templeton Institute, noted that US institutional investors wary of entering a falling market may be willing to take another look at some of these Korean names now. William Brattan, head of cash equity research for APAC at BNP Paribas, observed that long-only investors avoided positions experiencing such violent moves in the leveraged environment.
