KOSPI Plunges 40% in 27 Days as Leveraged ETFs Erode Trust

South Korean market volatility stems from leveraged ETF mechanics and regulatory gaps, not fundamentals, with 360,000 retail accounts liquidated amid structural concerns.

Woofun AI notes that Bloomberg columnist Shuli Ren identifies eroding investor trust and structural flaws, rather than corporate fundamentals, as the core crisis for the South Korean stock market. The KOSPI index declined nearly 40% within 27 trading days this year, despite a forward 12-month P/E ratio of approximately 5.5 and strong AI chip demand benefiting Samsung Electronics and SK Hynix.

Ren attributes abnormal volatility to single-stock leveraged ETFs approved by regulators, which mechanically amplify swings through trend-based rebalancing. Goldman Sachs data indicates that during June's peak, SK Hynix leveraged ETF rebalancing flows could represent 40% of average daily volume for a 5% price fluctuation. Consequently, the most popular SK Hynix leveraged ETF fell 84% from its June high, triggering forced liquidations for roughly 360,000 accounts, 62% of whom are under 35. Ren argues that persistent volatility and questioned regulatory credibility may cause global funds to bypass the market, regardless of AI sector growth.