South Korea’s Finance Minister Koo Yun-chul said on Tuesday that his country would try to reach a mutually beneficial trade deal with the United States.
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South Korea’s finance minister apologized on Wednesday after retail investors piled up huge losses on leveraged bets on stocks following rule changes earlier this year.
According to KB Financial Group, with the introduction of single-stock leveraged exchange-traded funds (ETFs) on May 27, Korean individual investors recorded net purchases of 14 trillion won ($9.7 billion), compared with about 2 trillion won from foreign investors.
But the speculative trading boom that has fueled one of the world’s hottest stock markets has seen South Korea’s Kospi index undergo a sharp correction led by a decline in semiconductor stocks, leaving investors with heavy losses.
The pain was especially acute for holders of single-stock leveraged ETFs tied to semiconductor giants. samsung electronics and SK Hynixsoared along with the AI-driven semiconductor rally.
The KODEX SK Hynix Single Stock Leveraged ETF, a product designed to double the daily movement of SK Hynix stock, has fallen more than 80% from its June 23 peak, according to LSEG data.
Comparable products tracking Samsung have fallen nearly 75% from their June 3 peak.
This comes after the Kospi’s meteoric rise came to an abrupt halt, with the index’s value falling about 35% in the past month due to concerns over chip stocks.
Kospi’s fortunes have reversed in recent weeks as investor anxiety spooked the index’s largest constituent.
South Korea’s Finance Minister Koo Yun-chul accepted demands from lawmakers in parliament on Wednesday for an apology after the single-stock leveraged ETF was introduced without careful consideration, Reuters reported.
Lee Ogwen, head of the country’s Financial Services Commission, also said on Wednesday that regulators were considering cutting off access to the product for all but professional investors.
“If necessary, there is a way to raise (the investment requirements) to professional investors,” Lee said at the National Assembly Political Affairs Committee in Seoul, according to the Seoul Economic Newspaper.
He added that regulators could lower the leverage multiplier for single-stock leveraged products if lawmakers prepare the necessary legislation.
“The 2x (tracking multiple) is too high, so lowering it would be effective from the perspective of easing volatility,” Li said. He added, “I would like to consider considerations for investors, such as a general meeting of beneficiaries, during the bill review process.”
—CNBC’s Lee Ying Shan and Blair Baek contributed to this report.
