Kim Yong-beom, head of the Presidential Policy Office, stated that the high volatility in the domestic stock market is not solely due to leverage exchange-traded funds (ETFs) and announced plans to review the overall structure of the capital market along with financial authorities.
Accompanying President Lee Jae-myung on his state visit to Brazil, Kim made these remarks on July 28 during a briefing on the outcomes of a Korea-Brazil business roundtable held in São Paulo, in response to questions about government measures being considered to stabilize the stock market.
Kim drew a line against stabilization measures aimed at defending specific index levels, saying, "It does not seem appropriate to approach stock market stabilization measures with a focus on any particular market level."
Regarding the recent sharp decline in the stock market, which has highlighted the impact of leverage ETFs introduced at the end of May, he countered, "While it may seem that many issues can be attributed to that one factor, it is not necessarily the case."
Leverage ETFs are products that track the daily returns of underlying assets at a certain multiple. They have been criticized for potentially increasing market volatility due to concentrated trading aimed at maintaining the specified leverage during significant market movements.
Kim noted that instances of market fluctuations have been observed not only just before market close but also from the early trading hours, indicating that the recent decline cannot be solely explained by leverage ETFs. He stated, "Looking at the timing of the volatility, it is not solely due to leverage ETFs, and the structural characteristics of our capital market contribute to increased volatility."
He identified structural factors such as a high proportion of individual investors, active trading of derivatives, and concentration in certain semiconductor companies like Samsung Electronics and SK Hynix. He explained that semiconductor-related stocks account for 40-50% of the domestic market, leading to amplified volatility during industry debates compared to other countries.
Kim remarked, "If the volatility in overseas markets is at 10, it may appear as 20 or 30 in our country due to the characteristics of the market."
The Financial Services Commission plans to further enhance the leverage ETF system. The government will also examine factors contributing to volatility in the domestic capital market, including the proportion of derivative trading and the composition of investors.
Kim stated, "The improvement of the leverage ETF system is being continuously pursued by the Financial Services Commission, and beyond that, we aim to comprehensively review the structural factors that lead to significant volatility in the capital market, including derivatives and investor composition."
However, when asked whether President Lee had been briefed on the situation or had issued any specific instructions, Kim replied, "The President's schedule is very busy, and we are reviewing it within the policy line, but the President has not separately mentioned the market situation."
* This article has been translated by AI.
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