KOSPI Plummets 44%: Leverage ETFs Trigger 9 Circuit Breakers and Public Outrage

Woofun AI reports that South Korea’s financial landscape has fractured, transforming from a global market leader into a zone of acute distress, with retail investors placing funeral wreaths outside the National Assembly to protest the collapse of the KOSPI index. The crisis centers on the rapid depreciation of assets linked to tech giants Samsung and Hynix, while President Lee Jae-myeong faces intensifying scrutiny for his administration’s role in promoting high-leverage financial instruments that amplified the downturn.

The frequency of market halts in 2026 has reached unprecedented levels, signaling a breakdown in normal trading stability. Historically, the KOSPI has experienced only 15 circuit breakers since its inception, yet 9 of these have occurred this year alone, with 4 concentrated in July. On July 28th and July 29th, the index triggered a level-1 circuit breaker for two consecutive days, a mechanism designed to halt trading for 20 minutes when the index drops by 8% within a single minute. This threshold was first activated in 2000 and had only been triggered six times through 2024, during major global events such as the internet bubble, the 9/11 attacks, the COVID-19 pandemic, and the "Black Monday" yen carry trade liquidations in 2024. By July 29th, 2026, the cumulative count had surged, with additional triggers on July 7th and July 13th, effectively turning a rare emergency protocol into a weekly occurrence.

Investor sentiment has deteriorated into dark humor and despair, with netizens comparing the local market to volatile crypto assets. The term "three-peat" emerged among traders, sarcastically referencing the consecutive circuit breakers, while an adapted version of Warren Buffett’s mantra circulated: "First principle: Never buy... Second principle: No matter what, always stick to the first principle." The KOSPI was dubbed "KSPY," with critics noting that it makes the S&P 500-tracking ETF "SPY" appear stable by comparison. An American netizen who exited the market early cited overwhelming stress, only to be mocked by Korean traders who claimed his "Korean bloodline isn’t strong enough" and urged him to use leverage to experience the full volatility. This comparison to junk cryptocurrencies and crypto casinos underscores the perception that stocks have lost their traditional safety nets, becoming high-risk speculative vehicles.

The market’s trajectory was defined by a rapid ascent driven by AI narratives, followed by a catastrophic reversal. At the end of 2025, the KOSPI closed at 4,214 points, but by June 19, 2026, it had surged to a record high of 9,385.59 points, fueled by optimism around memory chips and semiconductors led by Samsung and Hynix. On June 22nd, SK Hynix’s market capitalization surpassed Samsung’s for the first time in 25 years, marking the symbolic peak of the bull run.

However, the momentum reversed sharply; by July 29th, the index had fallen 44% from its June high. July is projected to be the worst month in KOSPI history, with losses approaching 30% and trillions of won in market value evaporating, illustrating how quickly the "strongest stock market in the world" narrative collapsed into a crisis.

Social media platforms reveal the profound personal impact of the crash, with retail investors facing financial ruin and psychological distress. One netizen described drinking two bottles of soju before losing the desire to drink entirely, subsequently frantically submitting resumes on job portals 알바몬 and 잡코리아 to secure multiple part-time jobs. The losses incurred were equivalent to the cost of two imported cars, leading to severe sleep deprivation and social withdrawal. Another viral post on X, translated by Grok, described a "Winner of Life" who witnessed a manager scream "My life is over" after being forced to liquidate positions, having invested all his pension funds and loans. This post, filled with the Korean tear symbol ㅜㅜ, garnered over 3 million views, highlighting the widespread fear that the market crash is triggering a broader social emergency.

Woofun AI data shows that in response to the escalating social unrest, the government moved to address potential suicide risks, drawing criticism for the timing of its actions. On July 28th, coinciding with the market collapse, the National Suicide Response Office was established in collaboration with the National Police Agency and the Fire Service, aiming to elevate suicide emergency response to a national level. This initiative included plans to monitor and visit individuals who attempted suicide but refused counseling.

While intended for broader crisis intervention, the announcement was immediately linked to the stock market crash by the media. The gravity of the situation was underscored by the appearance of more than 30 white wreaths outside the National Assembly building on Yeouido Island in Seoul, where investors displayed messages such as "Is investor protection just lip service?" and "Force delisting," directly targeting the government’s handling of the crisis.

The core of the investor anger lies in the mechanics of single-stock leverage ETFs, which amplified losses through structural design. These products, focused on just one stock rather than a diversified portfolio of 10 or more, track twice the daily gains or losses of the underlying asset. If Samsung rises by 10%, the ETF rises by 20%; if it falls by 10%, it falls by 20%. More critically, the "negative compound interest effect" erodes net value during volatile periods, meaning holders can lose money even if the stock price remains flat. Launched in May this year, these instruments attracted aggressive inflows, with over 7 trillion won invested in single-stock ETFs like "Samsung Hynix" in July alone. When the market turned, mechanical rebalancing forced sales during declines, creating a self-reinforcing downward spiral that financial regulators likened to "Squid Game," turning the KOSPI into a casino-like environment.

Political blame has converged on President Lee Jae-myeong and Kim Yong-beom, head of the Presidential Policy Office, for accelerating the launch of these high-risk products. Lee’s political rise was tied to the "KOSPI 5000" slogan, which he advocated during his 2022 presidential campaign, promising that reaching 5,000 points was achievable. After losing to Yoon Suk-yeol, Lee gained prominence as "South Korea’s most resilient leader" during the martial law crisis, bypassing internet restrictions to enter the National Assembly and initiate voting to repeal the decree.

Following Yoon’s impeachment and sentencing, Lee entered the Blue House in a by-election last June, personally investing 40 million won in local ETFs and promising to add 1 million won monthly. The KOSPI did reach 5,000 points early this year and soared to 9,385 points, with gains exceeding 100%, but the subsequent crash back to 5,000 points left retail investors trapped with leveraged positions at the peak.

Public backlash intensified as the government attempted to deflect responsibility, leading to sharp political opposition. On July 29th, while accompanying Lee Jae-myeong on a state visit to Brazil, Kim Yong-beom held a press conference in São Paulo, arguing that not all problems could be blamed on leverage ETFs. He cited "structural factors," claiming that South Korea’s market is inherently volatile due to active retail investing and a high proportion of derivatives, stating that "a fluctuation of 10 in the core areas becomes 20 or 30 in South Korea."

This explanation was widely perceived as an attempt to shirk responsibility, prompting netizens to mock Lee’s name as "대재명" (Dae-Jae-myeong), a sarcastic reference to "Great Lee Jae-myeong." The National Force Party seized on the controversy, demanding Kim Yong-beom’s removal and calling for a national investigation, accusing the administration of pushing high-risk products to stabilize stock prices ahead of the local elections on June 3rd.

Regulatory crackdowns have begun, but the future of the administration remains uncertain. Financial authorities announced that starting August 5th, the minimum margin requirement for trading leverage ETFs would increase from 10 million won to 30 million won. Authorities are also considering restricting new purchases to professional investors and lowering the 2x leverage ratio. Top officials from finance, banking, and the central bank held an emergency "F4 meeting" overnight to address the crisis. This marks a critical juncture for Lee Jae-myeong’s presidency, as the Blue House faces growing public anger and the perception that the government prioritized market optics over investor protection, potentially setting the stage for a political reckoning.