Bloomberg reported that President Lee Jae-myung's stock market stimulus policies are facing backlash due to extreme volatility in the South Korean stock market.
Despite actively encouraging stock investment, President Lee's push for high-risk financial products to attract domestic capital has drawn criticism as stock prices plummeted, leading to increased losses for individual investors.
On August 2, Bloomberg published an article titled 'Stock-Loving South Korean President Faces Criticism Amid Market Turmoil.'
Last week, the KOSPI index fell nearly 40% from its peak a month ago. Following the government's announcement to restrict individual investors' leverage ETF investments, the index rebounded approximately 18% in a single day, marking its largest daily gain ever.
Overall, the KOSPI is still up more than 50% this year, driven by increased demand for memory semiconductors due to the expansion of artificial intelligence (AI) investments, significantly boosting the stock prices of Samsung Electronics and SK Hynix. Together, these companies account for more than half of the KOSPI's total market capitalization.
However, the fluctuations in stock prices have also widened significantly. This year, there have been 32 days when the KOSPI rose or fell by more than 5%, accounting for about a quarter of all trading days. Bloomberg described this year as the most volatile since the KOSPI began trading in the 1980s.
Bloomberg identified single-stock leverage ETFs that double the price movements of Samsung Electronics and SK Hynix as a key factor in the increased volatility.
These products are designed to yield approximately 2% returns when the stock price of Samsung or SK Hynix rises by 1%. Conversely, if the stock price falls by 1%, the losses also increase by about 2%.
While such products are typically traded by professional investors in other countries, individual investors have purchased the majority in South Korea. At one point, stocks of Samsung Electronics and SK Hynix, along with their corresponding leverage ETFs, accounted for over 70% of daily trading volume in the domestic market.
The government's push for these products aimed to prevent domestic capital from flowing into U.S. stocks. Officials believed that increased foreign stock investment could lead to capital outflows and negatively impact the value of the Korean won.
In January, Kim Yong-beom, head of the Presidential Office's Policy Office, met with representatives from major securities firms to discuss ways to stimulate domestic stock investment. Following this, financial authorities expedited the approval process, and leverage ETFs related to Samsung Electronics and SK Hynix were launched at the end of May.
However, as the market plummeted, criticism arose that the government rushed the introduction of high-risk products without sufficient consultation or protective measures for individual investors.
Lawmakers from both parties have scrutinized the approval process for leverage ETFs and the government's response in the National Assembly. There are also concerns that the government has set stock price increases as a policy goal, with the National Pension Service increasing its domestic stock investments.
Bloomberg noted that President Lee promised a 'KOSPI 5000 era' during the 2025 presidential campaign and has repeatedly encouraged citizens to invest in stocks instead of real estate since taking office.
After the KOSPI surpassed the 5000 mark in January, expectations for government support of the stock market grew.
In response to the sharp decline in stock prices, the government initiated emergency measures. The chair of the Financial Services Commission and the head of the Financial Supervisory Service canceled their scheduled vacations, and Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol convened an emergency meeting with the Bank of Korea governor and officials from the Presidential Office.
The government subsequently announced measures to stabilize the market, including restrictions on individual investors' leverage ETF investments.
The Presidential Office explained that the introduction of leverage ETFs was aimed at expanding investment options for investors and allowing access to products previously only available overseas. It also stated, 'Given the increased market volatility, we will prepare additional measures for market stability and investor protection.'
Bloomberg concluded that while the KOSPI has rebounded, the political burden may now intensify. If the stock market decline leads to reduced consumer spending, it could pose challenges for President Lee's key policies, including tax revenue expansion, welfare spending, and the development of the semiconductor industry.
* This article has been translated by AI.
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