South Korea’s retail traders, nicknamed "ants," have significantly influenced the nation’s stock market. Leveraged exchange-traded funds (ETFs) and two leading firms have now dominated over 70% of trading activity in a market valued at $4.3 trillion.
#How Did Two Stocks Dominate the Market?
The excitement surrounding the South Korean stock market focuses on single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix, both leaders in semiconductors capitalizing on the booming AI industry. Introduced in May 2026, these products rapidly became the go-to trades among investors.
Currently, a staggering 92% of individuals owning these ETFs are retail investors. The assets managed in these newly launched domestic ETFs skyrocketed from around $3 billion at launch to nearly 14 trillion won, which is about $9.1 billion, within just a few weeks. The entire leveraged ETF market in South Korea has swelled to an estimated $40 billion to $45 billion, setting new records along the way.
By the end of May 2026, margin debt for retail trading reached an unprecedented 60 trillion won, approximately $39 billion, primarily fueled by demand for leveraged ETFs.
#What Led to the Recent Selloff?
In mid-June 2026, a sudden market downturn caused domestic leveraged ETFs to drop by nearly 25% in just one day. Related products listed in Hong Kong also experienced significant declines, over 23%. This downturn set off a chain reaction, affecting global chip stocks.
The Financial Supervisory Service (FSS), South Korea’s leading financial regulator, expressed concern over the quick approvals of these ETFs, emphasizing the inherent risks. Despite earlier warnings regarding potential market volatility, the regulator acknowledged its role in the situation during a public statement on June 22, 2026.
#How Do Leveraged ETFs Function?
These ETFs are designed to amplify daily returns, usually by a factor of two. For example, a 5% decrease in Samsung's stock translates to a near 10% loss for ETF holders. The mechanics of leveraged ETFs can be complex. Stocks that drop by 10% and subsequently recover by the same percentage do not return to their original value. Consequently, a 2x leveraged ETF tracking this movement would find itself in a more unfavorable position due to a phenomenon known as volatility decay.
#What Should Investors Keep in Mind?
The FSS has proposed stabilization measures, with discussions about potentially delisting some leveraged products underway. The margin debt of 60 trillion won is crucial, as it signifies a large amount of borrowed capital that must be managed regardless of market direction.
Leveraged ETFs are best suited for short-term trading rather than long-term holds through market fluctuations. Given that 92% of these assets are retail-owned, many investors may not be aware of this distinction, which is critical for their investment strategy.