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Leveraged ETFs fueled a sharp KOSPI drop and rebound in South Korea
South Korea’s KOSPI fell 44% from its June peak before rebounding 18% in a single day, as leveraged ETF trading swelled and daily rebalancing amplified the selloff, according to Yahoo Finance.
South Korea’s KOSPI plunged 44% from its June peak, then staged a record-breaking 18% single-day rebound on Friday, a move Yahoo Finance attributes less to broad panic and more to a leverage-driven feedback loop tied to leveraged ETFs.
The catalyst was the launch of single-stock leveraged ETFs in South Korea this past May, which pulled in more than a million retail investors and left authorities responding as the products and underlying stocks became dominant in trading.
By July, Yahoo Finance says leveraged products and their underlying stocks accounted for 70% of total daily trading volume on the local exchange, with the largest weightings in the index coming from Samsung Electronics and SK hynix, which together make up over half of the KOSPI’s weighting.
Yahoo Finance also points to ETF mechanics, noting that because leveraged ETFs must rebalance exposure daily, a declining stock can force issuers to sell more shares into weakness, compounding downside risk even as the products amplify gains in rising markets.
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