Minister apologizes as Korean leveraged ETF investors nurse heavy losses amid chip stock rout

South Korea’s finance minister apologized on Wednesday after retail investors racked up heavy losses from leveraged bets on stocks, following rule changes earlier this year.

The May 27 introduction of single-stock leveraged Exchange Traded Funds has seen Korean retail investors pile in with net purchases of 14 trillion won ($9.7 billion), compared with roughly 2 trillion won by foreign investors, according to KB Financial Group.

But the speculative trading boom that helped fuel one of the world’s hottest equity markets has resulted in those investors nursing heavy losses as Korea’s Kospi index has experienced a sharp correction, led by a downturn in chip stocks.

The pain has been especially acute for holders of single-stock leveraged ETFs tied to chip giants Samsung Electronics and SK Hynix, which had surged alongside the AI-driven semiconductor rally.

The KODEX SK Hynix Single Stock Leverage ETF — a product designed to deliver twice the daily move in SK Hynix shares  — has fallen more than 80% since its June 23 peak, according to LSEG data.

The equivalent product tracking Samsung has fallen almost 75% from its peak on June 3.

It comes after a blistering rally in the Kospi has come to an abrupt halt, with jitters over chip stocks seeing the value of the index plunging almost 35% over the last month.

South Korea’s finance minister Koo Yun-cheol accepted lawmakers’ demand for an apology in a parliamentary session on Wednesday after single-stock leveraged ETFs were introduced without careful consideration, according to Reuters.

The country’s Financial Services Commission Lee Eog-weon also said on Wednesday that the regulator is considering cutting off access to the products to all but professional investors.

Lee told the National Assembly’s Political Affairs Committee in Seoul that «if necessary, there is a way to raise [the investment requirements] up to professional investors,» according to the Seoul Economic Daily.

He added that regulators could lower the leverage multiple of single-stock leverage products if the necessary legislation is prepared by lawmakers.

Lee said: «Since [the tracking multiple of] two times is too large, lowering it would likely have an effect in terms of easing volatility.» He added, «We will look into how to take investors into account, such as through beneficiary general meetings, together during the process of considering the bill.»

— CNBC’s Lee Ying Shan and Blair Baek helped contribute to this report.