"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"

According to foreign media reports, even domestic individual investors, who traditionally have had a strong risk appetite, are leaving the market as the KOSPI index experienced a significant drop last month.

On August 2, Bloomberg News reported that the KOSPI index fell by 22% over the past month, marking its largest monthly decline since the global financial crisis. Although the index rebounded by 18% in a single day on July 31, individual investors posted their largest-ever daily net selling on the KOSPI market on that day.

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

Individual investors made net purchases of KRW 78 trillion worth of KOSPI stocks during May and June. This was driven by the government’s stock market reform policies and expectations for the single-stock leveraged exchange-traded funds (ETFs) launched at the end of May. However, as volatility surged last month and the market became turbulent, investor losses accumulated. The circuit breaker, which temporarily halts trading, was triggered four times last month alone.

The single-stock leveraged ETF, which was introduced to expand personal investment opportunities and prevent capital outflows to similar overseas products, is now facing criticism for having exacerbated market volatility. The 30-day volatility of the KOSPI index soared to 97.13% on July 31, its highest since 1990. The index then dropped 39% over the subsequent 27 trading days after its peak, a sharper decline than those seen during the 2015 crash of China’s Shanghai Composite Index (22%), the 1997 Asian financial crisis KOSPI drop (6%), and the 1989 Japanese Nikkei bubble burst (5%).

Some analysts believe, however, that individual investors were not unaware of these risks. High volatility has long been a characteristic of the Korean market, but analysts say the fear of missing out during a bull market drove investors to focus on large-cap AI stocks and make leveraged investments.

Lale Akoner, global market analyst at eToro, described this as “a textbook example of what happens when crowded trades meet leverage,” and warned that investors should brace for sharp swings in technology and semiconductor stocks over the next few months.

Financial authorities temporarily halted new listings of single-stock leveraged ETFs in mid-July. In addition, the Financial Services Commission is pushing for amendments to the Financial Investment Services and Capital Markets Act to allow the leverage ratio of single-stock leveraged ETFs to be rapidly adjusted if market volatility spikes.

Nonetheless, considering the year as a whole, the KOSPI is still maintaining relatively high returns, supported by gains in AI-related stocks. However, many observers predict that it will take time to restore the investment sentiment and trust that have been shaken. Jung Eui-jeong, head of the Korea Value Investors Association, stated, “Individual investors’ anger and criticism toward the government have reached their peak.”

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