Concerns have been raised that the delay in policy implementation by financial authorities, combined with the asset allocation stance of national pension funds, has exacerbated the structural selling pressure on single stock leveraged exchange-traded funds (ETFs), contributing to increased downside volatility in the KOSPI index.
According to the Korea Exchange, the KOSPI index recorded 8,228.70 on May 27, the day single stock leveraged ETFs were launched, and continued to rise, peaking at 9,114.55 on June 22. However, it then entered a sharp correction phase, plummeting approximately 31.34% to 6,257.45 within a month and a half. The index experienced a dramatic rollercoaster, dropping 10.84% in a single day on July 28, then surging 17.91% on July 31, only to fall again by 5.12% the following day.
Market analysts point out that while authorities approved the launch of single stock leveraged ETFs during a period of index overheating, they later introduced stringent regulations as the market entered a downturn, thereby increasing volatility.
As of July 30, the total assets under management (AUM) of single stock leveraged ETFs had plummeted by 66.7% (11.746 trillion won) to 5.8533 trillion won, down from a peak of 17.5993 trillion won on June 25, due to the market decline and regulatory pressures.
During the same period, despite an influx of investors increasing the trust principal from 11.6153 trillion won to 18.6428 trillion won, the value of the underlying assets fell sharply, leading to a vicious cycle where liquidity providers and asset management firms were forced to liquidate and redeem physical stocks for risk management. Rather than curbing individual speculation, the regulations have triggered a secondary sell-off of large-cap stocks due to the inability to maintain ETF setups.
This situation has led to significant fluctuations in the large-cap stock market, with institutions engaging in massive trading of stocks like Samsung Electronics and SK Hynix. For instance, on July 2, SK Hynix saw a net selling of 3.6044 trillion won by institutions, only to reverse to a net buying of 2.5235 trillion won the next day. Similarly, Samsung Electronics shifted from a net buying of 1.2863 trillion won on July 29 to a net selling of 1.2192 trillion won by August 3.
There are also concerns regarding the role of pension funds. Critics argue that while the National Pension Service has been active in buying during market upswings, it has failed to act as a stabilizing force during downturns due to procedural constraints and target allocation limits.
A financial industry insider stated, "Even if there is a short-term rebound in buying due to strong earnings from U.S. tech giants, the structural supply-demand distortions caused by policy delays will likely keep downside volatility risks in the KOSPI persistent for the time being."
* This article has been translated by AI.
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