Leveraged ETFs in the Spotlight After KOSPI Plunge

The South Korean stock market (KOSPI) plunged nearly 10% on June 23, 2026, wiping out the previous day's record gains that had reached the 9,100 level.

The 910.71-point drop was the steepest since March, triggered by massive foreign selling of chip stocks from Samsung Electronics and SK Hynix, which each plunged more than 12%.

Behind this fall, regulators acknowledged that the approval of a newly launched leveraged single security ETF last month had exacerbated volatility, while retail investor margin debt reached a record high.

This article will review what leveraged ETFs are, why they are in the spotlight, and the significant risks retail investors face in volatile markets.

Key Takeaways

• The KOSPI plunged 9.99% after regulators warned against leveraged ETFs. Samsung Electronics and SK Hynix each fell more than 12%, triggering a 20-minute trading halt.

• Retail investors dominate the market with margin debt reaching a record high in June 2026, increasing the risk of mass liquidations.

• Regulators admitted they were too hasty in approving leveraged single security ETFs, which exacerbated volatility.
   

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KOSPI Collapses: Chronology of Events

On June 23, 2026, South Korea's KOSPI index fell 9.99% or 910.71 points to 8,203.84, its deepest daily decline since March 4, 2026. The day before, the KOSPI had broken through the historical level of 9,100 for the first time.

Read also:KOSPI Crashes to Trading Halt

This decline was triggered by two main factors:

1. Foreign investors sold shares of chipmakers in a big way.

Samsung Electronics and SK Hynix each fell more than 12%, wiping billions of dollars off their market capitalization. These two stocks now account for more than half of the KOSPI's total value.

2. Regulator warning about leveraged ETFs.

Korea's capital market chief, Lee Chan-jin, admitted that the government was too hasty in approving leveraged funds linked to chip stocks. The product was only launched last month and is considered to have exacerbated volatility.

Read also: KOSPI Index Falls 10%, Biggest Drop Since 2008!

Leveraged ETFs: What Are They and Why Are They Dangerous?

A leveraged ETF is a product that uses debt or derivatives to multiply the daily returns of a specific index or stock. For example, a 2x leveraged ETF would gain 2% if the index rose 1%, and lose 2% if the index fell 1%.

The problem is, leverage works both ways. When the market goes down, losses are magnified. In a volatile market like Korean chip stocks, leveraged ETFs can accelerate the collapse.

Regulator chief Lee Chan-jin said: "The government was too hasty in approving leveraged funds linked to leading chip stocks."

This is a rare admission that policies have exacerbated systemic risks.

Read also: Leverage in Crypto: Definition, How It Works, and the Best Platforms

Risks for Retail Investors

Retail investors dominate the Korean stock market. CLSA Chief Equity Strategist Alexander Redman said: "This volatility cannot be explained without significant retail involvement.

What's worrying is that retail is driving it, as they use a lot of margin, and regulators are now allowing leveraged single security ETFs, adding fuel to the fire."

Data shows margin debt (borrowings to buy shares) reached a record high in June 2026.

Read also:List of Conglomerate Stocks You Must Know: Check Here!

Risks for retail investors:

Massive liquidation— if a margin call occurs, investors are forced to sell shares, deepening the decline.

Multiple losses— leveraged ETFs can wipe out entire capital in a matter of days.

Lack of understanding— many retail investors do not fully understand the risks of leveraged products.

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Impact on the Korean Stock Market

The KOSPI had actually risen 94.67% throughout 2026 before this correction. This surge was driven by chip stocks benefiting from global AI demand.

However, excessive concentration makes the market very vulnerable to shocks.

On June 23, KRX activated a 20-minute trading halt, the fourth such occurrence this year and the 10th in history.

Only 46 stocks rose, while 856 stocks weakened.

The Korean won also weakened 6.5% against the US dollar, adding to pressure on foreign investors.

Read also:7 Best Investments of 2026 Worth Considering Now

Investment Strategies Amid Volatility

For retail investors, there are several steps that can be taken:

Reduce leverage: Avoid leveraged ETFs if you do not fully understand the risks.

Diversification: Don't concentrate on one sector (chip) which is very volatile.

Pay attention to margin debt: If you use loans for investment, be aware of the risk of margin calls.

Monitor regulators: Leveraged ETF policies are subject to change at any time.

Stay calm: The Korean stock market still has strong fundamentals in the long term, but short-term volatility will be high.

Conclusion

The KOSPI plunged nearly 10% after regulators warned against leveraged ETFs. Samsung Electronics and SK Hynix fell more than 12%, triggering a 20-minute trading halt.

Retail investors with high margin debt are the most at risk.

Leveraged ETFs magnify both gains and losses, and regulators admit they were too hasty in approving them.

For retail investors, understanding leverage risk is key to surviving volatile markets.

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FAQ

What is a leveraged ETF?

Products that use debt or derivatives to multiply the daily returns of a specific index or stock.

Why did KOSPI fall?

Plunged 9.99% after regulators warned leveraged ETFs and foreign investors against selling chip stocks in large quantities.

Which stocks were hit the hardest?

Samsung Electronics and SK Hynix each fell more than 12%.

What is a trading halt?

A temporary trading halt by the exchange when the market falls too quickly. The KOSPI halted for 20 minutes on June 23.

What are the risks of leveraged ETFs for retail investors?

Multiple losses, margin calls, and massive liquidations when the market goes down.

What is margin debt?

Loans used by investors to purchase shares reached a record high in June 2026.

What do Korean regulators say?

Admits to being too hasty in approving leveraged single security ETFs.

Is KOSPI still undervalued?

After the correction, the KOSPI is still up 94.67% year-to-date. Valuation depends on the prospects for chips and AI.