KOSPI logs 25 volatile sessions in 37 as leveraged ETFs backfire

South Korea's KOSPI has traded like a meme stock for two months, with leveraged ETFs and extreme concentration driving 25 sessions of 2%-10% swings.

The KOSPI Composite Index has gained or lost between 2% and 10% in 25 of 37 trading sessions since the start of June, a volatility pattern more typical of individual speculative stocks than a national benchmark with more than 880 components.

"The net assets of Korean leveraged ETFs reached approximately $50 billion at the end of June, or four times that of the U.S., relative to market size," analysts at JPMorgan Chase said in a note. Several deleveraging events in recent weeks have contributed to outsize daily swings of 4% or greater.

Samsung Electronics and SK Hynix, the two memory chip giants that together account for more than 50% of the KOSPI's market-cap-weighted index, have seen their shares surge 248% and 613% over the trailing year, respectively. But since single-stock leveraged ETFs tracking the two companies launched on May 27, both stocks have fallen around 16% and 20%, leaving speculators with deepened losses. The KOSPI reached a record 9,385 on June 19 before tumbling 28% as of late July.

The South Korean experience may foreshadow similar dynamics in U.S. markets, where the S&P 500's 14 largest components account for almost 45% of index weighting and leveraged ETFs now hold about $200 billion in assets under management, providing an estimated $500 billion in notional exposure at 2.5 times leverage. With zero-day-to-expiration options accounting for 48% of retail options volume, according to Citadel Securities, the ingredients for a volatility spiral are already in place.

Leveraged Products Fuel a Destabilizing Loop

South Korea's single-stock leveraged ETFs, introduced in late May, were designed to give domestic investors exposure to the nation's AI chip champions without sending capital overseas. Instead, they have deepened losses during the recent downturn. President Lee Jae Myung last week urged financial watchdogs to take "necessary measures" over the products, while Financial Supervisory Service Governor Lee Chan-jin admitted regulators had greenlit the ETFs too hastily, saying, "Maybe I should have lain down on the floor to block it."

The government has since tightened rules, raising the minimum deposit to 30 million won ($20,280) and requiring fully cash-funded purchases. But the structural damage may already be done: leveraged ETFs in Korea now hold about $50 billion in assets, and their forced deleveraging during down days has created a self-reinforcing cycle of selling.

U.S. Concentration Mirrors Korea's Pattern

The parallels to U.S. markets are striking. Leveraged and inverse ETFs made up 31% of all U.S.-listed ETF launches in the first half of 2026, up from 22% through all of 2025, according to Morningstar. Meanwhile, the Nasdaq-100's top 10 companies by market cap account for over 67% of its weighting, all heavily reliant on AI for future growth.

Historically, every next-big-thing technology has navigated an early-innings bubble-bursting event. The internet took until well after the dot-com bubble burst for companies to optimize its use for sales and profits. A similar timeline may play out for AI, with leveraged products and extreme concentration magnifying the downside when the reckoning arrives.

This article is for informational purposes only and does not constitute investment advice.