Bloomberg: South Korea stocks face a deeper problem than the selloff — fading market trust

News Editor

2026-08-04 06:04:57

Bloomberg columnist Shuli Ren said the main threat hanging over South Korea’s stock market is not simply weak corporate fundamentals or a sharp drawdown in prices. In her view, the bigger issue is that the market’s structure, regulatory setup and investor confidence are all being tested at the same time. The KOSPI, which had been one of the world’s hottest and most volatile markets this year, fell nearly 40% in just 27 trading days. Ren said the approval of leveraged exchange-traded funds tied to single stocks is one key reason volatility became so extreme. Because such products have to rebalance mechanically, they tend to buy into rising markets and sell into falling ones, which can intensify price swings. Citing Goldman Sachs data, the report said that when the KOSPI peaked in June, a 5% move in SK Hynix could have triggered leveraged ETF rebalancing flows equal to 40% of the stock’s average daily trading volume. The selloff also hit retail investors hard. The most popular SK Hynix leveraged ETF at one point fell 84% from its June peak, and about 360,000 accounts were forcibly liquidated. Of those holders, 62% were under 35 years old. Ren argued that while the government had pushed capital market reforms and encouraged retail participation, it failed to contain leverage risk during the AI trading boom, undermining younger investors’ confidence in the domestic market.

South Korea stocksBloombergShuli Renleveraged ETFKOSPISK Hynixpolicy regulation

Bloomberg columnist Shuli Ren said South Korea’s stock market is dealing with a problem that runs deeper than a steep decline in share prices: pressure on market structure, regulatory policy and investor trust.

According to the report, South Korean equities had at one point been among the world’s best-performing and most volatile markets this year. The KOSPI dropped nearly 40% in just 27 trading days.

Fundamentals are not the only issue

Ren said the market’s central problem is not a broad deterioration in corporate fundamentals. Samsung Electronics and SK Hynix are still benefiting from demand for AI chips, and the market’s 12-month forward price-to-earnings ratio has fallen to about 5.5x. Even so, investors may still decide to stay away from South Korea.

Single-stock leveraged ETFs drew scrutiny

Ren pointed to regulators’ earlier approval of leveraged ETFs tied to individual stocks as an important driver of the market’s unusual swings. These products have to rebalance mechanically based on market moves, buying when prices rise and selling when prices fall, which can magnify volatility.

Goldman Sachs data showed that when the KOSPI peaked in June, a 5% move in SK Hynix could have led to leveraged ETF rebalancing flows equal to 40% of the stock’s average daily trading volume.

Retail investors took heavy damage

The selloff also hit South Korea’s retail crowd hard. Data cited in the report showed that the most popular SK Hynix leveraged ETF at one point slumped 84% from its June high. About 360,000 accounts were forcibly liquidated, and 62% of holders were younger than 35.

Ren said the South Korean government had earlier promoted capital market reforms and sought to attract retail investors, but failed to sufficiently control leverage risk during the AI trading frenzy. That, she argued, is eroding younger investors’ confidence in the local market.

Questions now center on rules and credibility

In Ren’s view, the issue for South Korean equities is not a lack of AI-driven growth opportunities. The bigger concern is that market rules, regulatory credibility and trading stability are being questioned. If the extreme volatility continues, global capital may choose to bypass the market even if the AI industry keeps expanding.

This article was originally published by Bit.Fan. For more cryptocurrency news and market insights, visit www.bit.fan.

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