돈經濟

In 2026, the Korean stock market showed strength, with KOSPI reaching an all-time high, driven by the AI semiconductor supercycle. However, volatility expanded extremely after May, leading to increased controversy. In particular, the Samsung Electronics and SK Hynix single-stock leveraged ETFs, listed on May 27, were identified as a key factor in market distortion, and the phenomenon of 'the tail wagging the dog' began in earnest. The government belatedly introduced and implemented supplementary measures, and this report summarizes their impact and the outlook for the second half of the year.

Introduction of Single-Stock Leveraged ETFs and Exploding Volatility

A single-stock leveraged ETF is a product that tracks the daily return of a specific stock by two times. In Korea, it had been virtually prohibited due to restrictions on the proportion of single stocks. In early 2026, the introduction of this product was seriously considered during discussions led by Kim Yong-beom, Chief of Staff for Policy at Cheong Wa Dae, among others. The ostensible justification was to prevent capital outflow to Samsung Electronics and SK Hynix leveraged products listed in overseas markets such as Hong Kong, and to attract Korean retail investors back to the domestic market to stabilize the won-dollar exchange rate. Financial authorities even assessed that there was some effect of reducing the size of related products traded in places like Hong Kong.

However, the results were vastly different from expectations. Immediately after listing, capital poured in, mainly from individual investors, causing the net assets of related ETFs to exceed 10 trillion won in a short period. This created an abnormal structure where trading volume accounted for 30-40% of the entire ETF market. Leveraged ETFs perform daily rebalancing, mechanically buying and selling Samsung Electronics and SK Hynix, their underlying assets, to maintain their target leverage ratio. As this trading concentrated on these two stocks, which account for nearly half of KOSPI's market capitalization, a vicious cycle emerged, amplifying gains when stock prices rose and losses when they fell.

As a result, within about a month of listing, the circuit breaker was triggered more than 10 times, and the circuit breaker was activated multiple times. The KOSPI 200 Volatility Index (VKOSPI) reached an all-time high, fluctuating around the 90-point mark. With frequent days of daily fluctuations exceeding 5%, the market's speculative nature intensified to the point where it was compared to a 'casino' or 'Squid Game.' In particular, due to the negative compounding effect, there were numerous cases where the returns of leveraged ETFs did not meet expectations or even resulted in losses, despite the underlying assets rising for a certain period. Some analyses even estimated that individual investors' losses amounted to tens of billions of dollars within about a month. The side effects were so severe that even the head of the Financial Supervisory Service publicly regretted it, saying, 'We should have stopped it, even if we had to lie down.'

Government's supplementary measures and implementation process

As the volatility controversy spread to the political sphere and public opinion, financial authorities began to implement full-scale supplementary measures from mid-July. On July 16, the first set of measures was announced, including a temporary suspension of new single-stock leveraged product listings, a ban on advertising and events, an increase in the minimum deposit from 10 million won to 30 million won (cash only accepted), and an expansion of pre-education hours and enhanced evaluation. The increase in the deposit, originally scheduled to be implemented after mid-August, was brought forward to July 31 due to continued market instability.

Subsequently, additional measures were announced at an emergency market situation review meeting at the end of July. These included a total limit restricting individual investors' allocation to such products to within 20% of their total financial investment assets, the introduction of excessive bid surcharges similar to those in the futures market to increase the cost of short-term speculative trading, mandatory simulated trading, and a plan to establish emergency powers through an amendment to the Capital Markets Act, allowing financial authorities to directly adjust leverage ratios in emergency situations. This measure, which referenced Hong Kong's variable leverage system, was an attempt to secure a legal basis to temporarily lower the 2x leverage ratio when the market fluctuates sharply. A recommendation was also made to disperse rebalancing times instead of concentrating them just before market close.

Market changes after supplementary measures

The effects of the regulation were relatively quick to appear. Trading volume for single-stock leveraged and inverse ETFs plummeted from 10-15 trillion won per day before the regulation to 3 trillion won, and then to less than 1 trillion won. The turnover rate also significantly decreased, and its share of the total KOSPI trading volume fell from over 30% to less than 5%. As a result, in early August, some segments showed signs of stabilization, with intraday volatility shrinking to half the level of July.

However, it is still too early to consider it a complete normalization. As the regulation focused on individual investors, foreign and institutional trading remained relatively free, and the underlying shares of Samsung Electronics and SK Hynix continued to exhibit roller-coaster-like fluctuations, with daily surges and drops of around 10%. Furthermore, a balloon effect occurred, with some of the funds withdrawn from single-stock products moving to KOSPI200 and KOSDAQ150 index-based leveraged ETFs, which have relatively lower deposit requirements, or to overseas 3x leveraged products like the US SOXL. It was also pointed out that the volume of rebalancing itself did not significantly decrease, and the increased proportion of index-based products could become a new source of volatility. Ultimately, the market still holds the view that a half-hearted regulation that only restricts individuals makes it difficult to completely resolve the fundamental structure of market distortion.

Politically, this issue also became a burden for the Lee Jae-myung administration's economic team. Calls for the dismissal of Director Kim Yong-beom, who spearheaded the introduction of the product, and even accusations followed, leaving a significant blow to policy credibility.

Outlook for the domestic stock market in the second half of the year

The domestic stock market in the second half of the year is likely to be a phase where the robustness of semiconductor fundamentals intertwines with uncertainties in supply and demand and regulations. With expanding AI data center investments, HBM demand, and rising memory prices, the 2026 operating profit outlook for Samsung Electronics and SK Hynix remains explosive. Some securities firms believe that the memory supercycle could continue until 2028, and optimism was presented in the first half that the KOSPI could once again aim for above 10,000 if valuations merely recover to historical average levels. The recent sharp decline, which significantly lowered the forward PER, could also act as an attractive factor in the mid-to-long term.

However, several constraints remain in the short term. First, as long as the concentrated market capitalization structure itself does not easily change, the vulnerability where the movements of the two semiconductor stocks dictate the entire index will persist. Second, speculative demand remaining even after leverage regulations, foreign trading, National Pension Service rebalancing, and exchange rate variables could cause supply and demand instability. Third, if the global AI investment momentum slows down or concerns about a semiconductor peak-out emerge, there is a possibility that the rebound range could be limited, given the significant drop from the peak.

Therefore, in the second half of the year, the market is expected to focus not solely on semiconductors as in the first half, but on the spread to AI infrastructure-related sectors such as power equipment, secondary batteries (ESS), robots, and some materials, parts, and equipment. If the effects of regulations stabilize and volatility gradually returns to normal levels, selective buying opportunities may emerge for stocks with strong fundamentals. Conversely, if additional regulations are strengthened or political uncertainties increase, the possibility that investor sentiment will not easily recover cannot be ruled out.

In summary, the Korean stock market in the first half of 2026 will be remembered as an event where the high-leverage experiment of leverage ETFs starkly exposed the vulnerabilities of the market structure. The government's supplementary measures have achieved some success in curbing speculative demand in the short term, but they are still insufficient to fundamentally change the concentrated market capitalization and the individual-centric preference for leverage. In the second half, a sustainable basis for growth can only be established when volatility management and industry diversification are pursued alongside the sustained momentum of semiconductor performance.