ع
Regulators announced the new rules after the Bank of Korea governor and financial authority heads convened on Wednesday evening to address the escalating crisis, according to a government statement. The curbs include limits on how much retail investors can allocate to individual single-stock leveraged products along with higher transaction fees for the ETFs. Analysts have expressed skepticism that these steps will adequately address the volatility, with one from Citi Korea suggesting a market stabilisation fund would prove more impactful.
Retail investors have borne the brunt of the downturn after borrowing to invest in the products that amplified both the earlier rally and subsequent collapse, KB Financial Group data shows. Net retail purchases of the leveraged funds reached 14 trillion won since their May launch, compared with 2 trillion won by foreigners. Around 40 condolence wreaths appeared outside parliament with ribbons reading phrases such as “Slaughtering retail investors” and “Wait ’til pay back time, I will repay next time I vote”.
Finance Minister Koo Yun-cheol told lawmakers he was sorry for approving the leveraged products without proper vetting, a parliamentary session revealed. Calls for even stricter intervention have come from within the ruling party, including a proposal by candidate Jung Chung-rae for a temporary trading suspension on the ETFs. The developments have intensified pressure on President Lee Jae Myung’s administration.
The KOSPI index has shed roughly 40 percent of its value since hitting a record high in June, putting it on course for the largest monthly fall ever despite combined quarterly profits of 150 trillion won from Samsung Electronics and SK Hynix, company reports indicate. Specific products such as the KODEX SK Hynix Single Stock Leverage ETF have lost more than 80 percent from their peaks, according to LSEG data. Foreign investors unloaded a net 18.5 trillion won of shares during July amid the turmoil.
Tom Graff, chief investment officer at Facet, said his firm had been overweight South Korea until the prior Friday because of the volatility. “I do think the crash has a logical limit to how far it drops,” Graff said. “But I don’t want to try to catch the falling knife.”
The latest announcement builds on mid-July actions by the Financial Services Commission that banned new single-stock leveraged ETF listings and raised minimum deposits to 30 million won, according to a Wall Street Journal report. An anonymous brokerage analyst in Seoul criticised the new cap as poorly considered, noting it would not force sales by current holders or influence equivalent products traded in the United States and Hong Kong. That analyst added that Hong Kong’s curbs on leverage had helped mitigate forced selling during periods of market stress.
