“Local officials have to rein this in somehow.”
So said yours truly earlier this week, when South Korean shares suffered another brutal, circuit breaker-tripping wipeout courtesy of a record-setting loss for shares SK Hynix.
It’s already enough that the Kospi’s hostage to the fate of just two companies (SK Hynix and Samsung comprise over half of index market cap between them) without trading in those companies’ stocks being distorted by leveraged retail products.
Since winning regulatory approval, those products have grown such that they’re responsible for a very large share of underlying turnover in the stocks they reference. (The EOD rebalancing flows alone can comprise a quarter of cash turnover.)
As SocGen’s Asian equity analysts explained last month, “[These ETFs’] structure embeds a short gamma profile, meaning they must trade with the market direction.”
So, they buy into strength and sell into weakness, amplifying directional swings. “The effect,” SocGen’s team went on, “is magnified by rapid AUM growth and retail-driven flows, turning rebalancing into a structural source of demand/supply.”
On Thursday, South Korean regulators put their foot down, halting all new listings of leveraged single-stock ETFs until further notice. In addition, the Financial Services Commission raised the minimum account balance required to trade existing products (to over $20,000 from roughly $6,500) as well as the minimum order size (to 20 from one) and added an hour to a mandatory two-hour training course for leveraged ETF investors.
The regulator said it’ll consider taking additional steps if markets don’t stabilize in relatively short order. The higher account balance requirement also applies to South Korean investors trading offshore leveraged ETFs. (So, no, you can’t skirt the minimum by “rotating” into Hong Kong-listed products referencing SK Hynix and Samsung.)
Amusingly, the FSC said the decision to green-light the leveraged products in the first place was an effort to ensure capital kept flowing to South Korea. The ensuing shenanigans had the opposite effect, which local regulators at least had the humility to concede.
“The products were initially launched domestically as they were rapidly growing overseas and we judged that local investment is necessary to enhance the appeal of Korea’s capital market,” the agency’s director said. “But since then, equity market volatility has increased.” (Yes, yes it has.)
Meanwhile, the central bank hiked rates for the first time in three years.
The figure above’s a reminder: The won’s trading near the weakest since the GFC.
“Along with economic growth having strengthened, led by exports and investment, inflation is expected to remain above the target level for a considerable time, and financial stability risks also persist,” the bank said.
“Stock prices [have undergone] a sizable correction amid heightened volatility due to growing concerns over AI investment and large-scale net sales of domestic stocks by foreign investors,” the new policy statement added.
The bank flagged additional tightening to come, but didn’t provide a timeline, saying only that it’ll “be necessary to continue a policy stance consistent with further rate hikes.”
For reference, headline inflation in South Korea was 3.2% in June (core 2.5%), the fastest since late 2023.
At the press conference on Thursday, BoK governor Shin Hyun Song said “the next several policy meetings are all live.” “We’ll keep all options open,” he added.
What is happening with US single stock ETFs? There have been a large influx of new ETFs.
What is happening with US single stock ETFs? There have been a large influx of new products.
Thanks for your coverage of this. You, as well as a few of us here, have lamented how financial markets have transitioned from venues where capital-needy people met those with money to invest. The financial markets have morphed into government-protected casinos. The South Korean market mayhem is the culmination of that steady “gamification” of financial markets.
It’s akin to how the legalization of sports betting has impacted the sports market. Ol’ Nero must be smiling down upon us!
I am thinking of previous periods when financial engineering and securities innovation ran amok and with no discernible utility other than to give reckless people more things to trade with. Didn’t end well.
h those silly Aisians are so obsessed with gambling. Not like us nice Americans!
From Bloomberg today: “Kalshi is offering sports-style betting on drug trial results, a move the platform says will allow investors to isolate binary events like drug approvals from a company’s overall stock performance.
• The expansion fits into Kalshi’s ongoing effort to show that prediction markets can provide socially useful information — like flight cancellation rates — rather than just an outlet for sports gambling.
• And when it comes to what you can gamble on these days, all bets are off. From the chances of a major meteor striking Earth before 2030 to who the next James Bond will be, a relaxed regulatory environment has increasingly blurred the line between trading and gambling.
• Demand is soaring for the ability to bet on almost anything, with prediction markets processing billions of dollars in volume every week. Traditional players are taking notice: A number of financial giants and sports-betting firms are getting in on the action.
Financial “innovations” that helped trigger historical market crashes:
1907: Trust companies.
1929: Buying stocks on margin.
1987: Electronic “portfolio insurance.”
2001: Tech IPOs (pump and dumps).
2008: Sub-prime mortgage backed securities and credit default swaps.
2026(?): Multi-levered single stock ETFs, Bitcoin Treasury and covered-call funds; “synthetic” covered call ETF funds that do not own the underlying stock but “simulate” a portfolio using options strategies; private equity and private credit; and of course more Tech IPOs (pump and dumps). It is really only a matter of time.
Ah, it’s “too bad” that the South Korean market was closed for a holiday on Friday. All those investors missed the fun.
Yeah, today would’ve been bad there.
It’s not only Korea, Takaichi has a problem: Apple quietly raised iPhone prices in Japan by 8% to 11.3% across the board on July 17, 2026. This pricing adjustment, which affects the entire iPhone 17 lineup, the iPhone Air, and the iPhone 16, was primarily driven by the depreciation of the Japanese yen against the U.S. dollar.
Because the Japanese yen has hovered near a four-decade low, Apple adjusted these prices on its official online store to keep them in line with global U.S. dollar standards.
Apple recently hiked iPhone prices in Japan by up to 11%—following global price increases for Macs and iPads—driven by a combination of the historically weak yen and surging global memory and storage chip costs caused by the AI boom.
Maybe she should call Ian Paice, to get an uplifting economic drum beat going!
Enjoy
https://heisenbergreport.com/2026/07/09/the-real-crisis-is-in-japan-albert-edwards-warns/
TKS, I was looking for that article and couldn’t find it! TKS again!