The Kospi benchmark has dropped 30% since reaching a record high on June 19, wiping out gains for retail investors who piled into leveraged products during a market rally earlier this year.
The decline has become a political problem for President Lee Jae Myung‘s government, which championed reforms intended to give South Korea a stock market reflecting the country’s economic strength. Those changes eased regulatory limits and encouraged bolder trading, drawing millions of small investors toward instruments many did not fully understand.
Retail participation swelled as the index climbed through the first half of the year. Individual traders concentrated their bets in leveraged exchange-traded funds and structured products that amplify both gains and losses. When the market turned, the same leverage that inflated returns accelerated the damage.
The rout has left many households nursing heavy losses. Some investors are now chasing structured notes advertising coupons as high as 40% in an attempt to recover what they lost, a shift that risks compounding their exposure to volatile assets rather than reducing it.
South Korea’s market has been closely tied to its semiconductor sector, where firms such as Samsung Electronics and SK Hynix carry outsized weight in the index. Swings in chip shares have driven sharp moves in the broader benchmark throughout the year, adding to the strain on retail portfolios. Authorities had earlier considered limits on leveraged ETFs as small investors absorbed chip-driven losses.
The sell-off has renewed debate over whether the reforms exposed inexperienced investors to risks that were poorly disclosed. Officials face pressure to strengthen safeguards around leveraged and structured products marketed to the public.
The scale of the losses points to a recovery that could take years for affected households. The 30% fall from the June peak stands as one of the sharpest reversals for the Kospi in recent memory.