South Korea's KOSDAQ index fell 35.4% from 1205.12 on May 26 to 778.17 on this month's 9th following the May 27 launch of single-stock leveraged ETFs. Industry sources attribute the decline to liquidity shifting from KOSDAQ stocks to leveraged ETFs tracking Samsung Electronics and SK Hynix, whose share prices hit record highs during the period. Financial Services Supervisory Service (FSS) Governor Lee Chan-jin stated at a June press conference that the product introduction was intended to prevent overseas capital outflow but produced side effects, while Blue House Policy Director Kim Yong-beom said on the 10th that the F4 meeting (Ministry of Economy and Finance, Financial Services Commission, Bank of Korea, FSS) is monitoring market conditions.
KOSDAQ Index Records 35.4% Decline Following Leveraged ETF Launch
According to the financial investment industry on the 11th, the domestic stock market has experienced extreme volatility since single-stock leveraged ETFs launched on May 27. The KOSDAQ index recorded 1205.12 during trading on May 26, then fell to 778.17 on this month's 9th — a decline of 426.95 points (35.4%). The index rebounded 5.47% to close at 837.43 on the 10th.
Approximately 63.6% of the 2768 total KOSPI and KOSDAQ stocks recorded 52-week lows this year. A financial investment industry source stated that liquidity remaining in KOSDAQ was largely absorbed into single-stock leveraged ETFs, as Samsung Electronics and SK Hynix earnings increased rapidly due to rising DRAM demand, with both stocks rallying to new highs during the period.
FSS Governor Lee Chan-jin Acknowledges Product Side Effects at June Press Conference
FSS Governor Lee Chan-jin stated at a June press conference: "We introduced it to prevent overseas capital outflow, but the effect was minimal and only produced side effects. I reflect on whether we should have blocked it by any means necessary." Blue House Policy Director Kim Yong-beom said on the 10th: "The F4 meeting (Ministry of Economy and Finance, Financial Services Commission, Bank of Korea, FSS) is closely monitoring market conditions and deliberating on single-stock leveraged ETFs."
Industry Sources Criticize Regulatory Response as Insufficient
A financial investment industry source stated: "The government and financial authorities are maintaining an irresponsible attitude of just monitoring the situation, while rumors circulate about margin increases or weekly one-hour education requirements. If countermeasures are not introduced quickly, the number of investors suffering losses amid extreme volatility will inevitably increase."
FAQ
Q: What caused the KOSDAQ index to fall 35.4% between May 26 and this month's 9th?
A: Industry sources attribute the decline to liquidity shifting from KOSDAQ stocks to single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix, which launched on May 27. Both stocks rallied to record highs during the period due to rising DRAM demand.
Q: What did FSS Governor Lee Chan-jin say about the leveraged ETF launch at the June press conference?
A: Lee Chan-jin stated at a June press conference that the product was introduced to prevent overseas capital outflow but produced minimal effect and only side effects, adding that he reflects on whether regulators should have blocked the launch by any means necessary.
