Korean Stocks Trigger Circuit Breaker for Two Consecutive Days, Finance Minister Apologizes for Leveraged ETFs
The KOSPI index in South Korea triggered a circuit breaker for the second consecutive day.
After plummeting by 12% during trading on Wednesday, it narrowed to about 8%. Finance Minister Kim Joo-hyun apologized for the introduction of a single stock leveraged ETF without prudent consideration and is studying market stabilization measures.
The event-driven forced liquidation of leveraged products and tightening regulations have led to capital withdrawal from high-leverage ETFs, putting pressure on semiconductor heavyweight stocks while defensive assets and cash benefit.
Source: Public Information
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After the hasty launch of a single stock leveraged ETF tracking Samsung Electronics and SK Hynix in May 2026, retail funds surged, leading to a sharp increase in volatility. Prior regulations had repeatedly triggered circuit breakers and sidecar mechanisms, ultimately limiting new products.
Capital flows indicate that leveraged tools quickly convert retail margin into forced selling pressure, with resources shifting from high-beta chip stocks to low-risk assets. The motivation lies in the government's attempt to attract funds through product innovation while underestimating the amplifying effect of downturns.
Similar to the 2020 U.S. leveraged ETF liquidation during volatility and the 2015 cleanup of margin financing in the Chinese stock market, the current South Korean market is transitioning from a leverage-driven bull market to a deleveraging correction phase.
This is essentially a regulatory change, with the mechanism being that high-leverage products accelerate the downward spiral in a concentrated stock market, forcing authorities to intervene afterward to prevent systemic liquidity exhaustion.
ABAB News · Law of Cognition
Leverage is an accelerator of declines
Hasty innovation often ends in volatility
Apologies cannot counter the impact of forced liquidation