South Korea’s KOSPI index plunged 22% in July, marking its worst monthly performance since the 2008 global financial crisis and wiping out large sums of retail capital. The selloff has also triggered a political backlash, with individual investors directing their anger at the government for allowing a batch of single-stock leveraged exchange-traded funds that they say amplified market swings.
Retail frenzy built around AI names and policy support
Since May, President Lee Jae Myung has been publicly pushing stock-market reforms, helping fuel what the report described as a “KOSPI frenzy.” Samsung Electronics and SK Hynix, the two semiconductor heavyweights at the center of the global AI boom, accounted for more than half of the KOSPI by weight, drawing retail investors into aggressive bets financed with margin loans.
At the end of May, the government introduced single-stock leveraged ETFs, saying the products would widen investment access for retail traders and help prevent capital from moving into similar products listed overseas. Against that backdrop, retail investors were net buyers of about 78 trillion won in KOSPI shares across May and June, while also taking on substantial leverage through margin financing.
July crash hit chip leaders and triggered four circuit breakers
The unwind arrived in July. The KOSPI dropped 22% over the month and trading was halted four times under circuit-breaker rules, setting a record. Samsung Electronics fell 21% in July, while SK Hynix sank 35%.
Even though the market bounced as much as 18% on the final trading day of the month, many retail investors did not add to positions. Instead, they sold a record amount of shares into the rebound, a sign that confidence had been badly damaged.
In a Bloomberg report, eToro global market analyst Lale Akoner said: “This is a textbook disaster of crowded trades meeting leveraged capital. The deleveraging process won’t be over in a matter of days, and tech and semiconductor stocks are likely to stay highly volatile over the coming months.”
Leveraged ETFs become the center of public anger
Much of the criticism has focused on the new leveraged ETF products. Lee Jung-min, a 40-year-old retail investor who borrowed 50 million won against real estate to invest in the market, said: “The government poured fuel on the fire with those leveraged ETFs. They turned the stock market into a casino.”
Similar complaints spread widely on social media, where investors accused authorities of rushing the approval process and launching the products before risk controls were fully in place. The Korea Stockholders Alliance said retail anger and criticism toward the government had reached a peak.
Authorities moved in mid-July to suspend new leveraged ETF listings, then added market-stabilization measures later in the month. Still, Francis Tan, chief strategist for Asia at Indosuez Wealth Management, said rebuilding confidence remains a major challenge.
Some first-time investors say they will not return to Korean stocks
Newer investors who entered the market during the FOMO-driven surge appear to have been hit hardest. Kim Han-kyung, a Seoul resident in his 30s who bought South Korean stocks for the first time in May, said: “It was an unprecedented era of KOSPI frenzy, and I was completely swept up in it. Now I’m truly scared. I’ve carved two rules into my mind: first, do not invest in the Korean stock market; second, follow the first rule.”
Kim Dong-woo, a 33-year-old investor with seven years of trading experience, said the scale of the swings showed that market functioning was seriously distorted. Even after the July collapse, however, the KOSPI remains one of the world’s best-performing stock markets in 2026, according to the report. Samsung Electronics has risen more than fourfold since the start of 2025, while SK Hynix is up close to tenfold.
Akoner also said the volatility should not be read as a full collapse of the AI investment story. Even if the index itself stabilizes within weeks, the losses suffered by retail investors and the resulting distrust of government policy may take much longer to fade.