"Foreign Media Highlights Retail Investors Fleeing KOSPI: 'Brace for Wild Swings in the Coming Months'"

KOSPI Plunges 22% in July
Biggest Drop Since Global Financial Crisis
"High Volatility Drives Investors Out of Korean Market"

Foreign media have reported that, following a sharp decline in the KOSPI index last month, even domestic retail investors known for their strong risk appetite are leaving the market.

According to Bloomberg News on August 2, the KOSPI index dropped by 22% over the past month, marking the largest monthly decline since the global financial crisis. Although the index rebounded by 18% in a single day on the 31st of last month, retail investors recorded the largest single-day net selling in KOSPI market history on the same day.

On the 31st of last month, the KOSPI index soared more than 16% in early trading, quickly recovering the 6,500 level.

Retail investors made net purchases totaling 78 trillion won in KOSPI stocks during May and June. This was driven by optimism surrounding the government’s capital market reform policy and the introduction of single-stock leveraged ETFs at the end of May. However, as volatility surged last month and market instability intensified, their losses accumulated. Circuit breakers, which temporarily halt trading, were triggered four times last month alone.

The single-stock leveraged ETFs, introduced to broaden personal investment opportunities and prevent capital outflow to similar overseas products, have instead been criticized for amplifying market volatility. The KOSPI’s 30-day volatility soared to 97.13% on July 31, the highest level since 1990. Following its peak, the index fell by 39% over 27 trading sessions—a sharper drop than the 22% plunge of Shanghai Composite in 2015, the 6% fall in KOSPI during the 1997 Asian financial crisis, or the 5% decline in the Nikkei after Japan’s 1989 bubble burst.

However, there is also an assessment that retail investors were not unaware of these risks. While heightened volatility has long characterized the Korean market, the anxiety of lagging behind in a bull run reportedly drove investors into concentrated positions in AI-related blue chips and increased leverage investments.

Lale Akoner, global market analyst at eToro, stated, “This is a textbook example of what happens when concentrated trading meets leverage,” and warned, “We should brace for sharp fluctuations in tech and semiconductor stocks over the next several months.”

Financial authorities temporarily suspended the listing of new single-stock leveraged ETFs in mid-July. Furthermore, the Financial Services Commission is working to revise the Capital Markets Act so that leverage ratios of these ETFs can be quickly adjusted in the event of extreme market volatility.

On a year-to-date basis, AI-related stocks have helped the KOSPI maintain relatively high returns. However, there is a strong outlook that it will take time for investor sentiment and lost trust to recover. Jeong Eui-jeong, head of the Korea Equity Investors Association, commented, “Retail investors’ anger and criticism toward the government have reached their peak.”

This content was produced with the assistance of AI translation services.