South Korea's Finance Minister Koo Yun-cheol on Wednesday apologised after retail investors suffered heavy losses from leveraged stock bets following the introduction of single-stock leveraged exchange-traded funds (ETFs) earlier this year.
The products, launched on May 27, sparked a surge in speculative trading as retail investors poured money into leveraged ETFs linked to individual stocks. However, a sharp correction in the country's equity market has wiped out a significant portion of those investments, prompting calls for tighter regulations.
According to KB Financial Group, South Korean retail investors have made net purchases of around 14 trillion won ($9.7 billion) in single-stock leveraged ETFs since their launch, compared with roughly 2 trillion won invested by foreign investors.
The speculative frenzy initially helped drive South Korea's stock market to record highs, but sentiment reversed sharply as chip stocks came under pressure, dragging the benchmark Kospi index down nearly 35% over the past month.
The biggest losses have been concentrated in leveraged ETFs tracking semiconductor giants Samsung Electronics and SK Hynix, which had previously rallied on optimism surrounding artificial intelligence-driven demand for chips.
The KODEX SK Hynix Single Stock Leverage ETF, which is designed to deliver twice the daily return of SK Hynix shares, has plunged more than 80% since reaching its peak on June 23, according to LSEG data.
ALSO READ: Meta Has Fallen Nearly 20% Since January. So Why Are Analysts Still Backing The Stock?
Similarly, the leveraged ETF linked to Samsung Electronics has fallen nearly 75% from its June 3 peak.
During a parliamentary session on Wednesday, Finance Minister Koo Yun-cheol accepted lawmakers' demand for an apology, acknowledging that the products had been introduced without sufficient consideration, according to Reuters.
South Korea's Financial Services Commission (FSC) also indicated that it is considering stricter rules governing access to the products.
FSC Vice Chairman Lee Eog-weon told the National Assembly's Political Affairs Committee that regulators are examining whether investment in single-stock leveraged ETFs should be restricted to professional investors.
"If necessary, there is a way to raise the investment requirements up to professional investors," Lee was quoted as saying by the Seoul Economic Daily.
The regulator is also evaluating whether the leverage offered by these products should be reduced.
"Since two times is too large, lowering it would likely have an effect in terms of easing volatility," Lee said, adding that regulators would also consider investor interests, including consultations through beneficiary meetings, while reviewing potential legislative changes.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.