Korean Retail Investors Accuse Government of Turning Stock Market into a "Casino," Some Investors Vow to Stop Buying Stocks

August 2nd. According to Bloomberg, the South Korean KOSPI Index experienced a sharp drop in July, causing significant losses for retail investors. Despite the index surging by a record 18% on Friday, retail investors set a new record for net selling of KOSPI stocks on that day. The index recorded a 22% decline in July, marking the largest monthly drop since the global financial crisis, with the total market capitalization of the South Korean stock market standing at approximately $3.9 trillion.

Driven by President Lee Jae-myung's efforts to reform the stock market and the listing of single-stock leveraged ETFs, South Korean retail investors accumulated around 78 trillion Korean won ($54.2 billion) in KOSPI stocks from May to June. After the sharp market downturn in July, many investors on social media pointed fingers at the government. A Seoul-based investor in their 30s, who entered the South Korean stock market for the first time in May, has now decided to "stop investing in the South Korean stock market." Another 40-year-old investor borrowed 50 million Korean won against their housing to invest in stocks and criticized the government for turning the market into a "casino" with the introduction of leveraged ETFs.

In July, the KOSPI triggered a circuit breaker and halted trading four times, setting a record for a single month. Samsung Electronics and SK Hynix together accounted for over 50% of the KOSPI weight, with their stock prices dropping by 21% and 35% in July, respectively. However, since the beginning of 2025, Samsung Electronics has still risen by over four times, while SK Hynix has surged nearly tenfold. Analysts believe this is a typical outcome of crowded trades combined with leverage. Deleveraging cannot be completed in a matter of days, and in the coming months, technology and semiconductor stocks may still experience significant volatility. However, this should not be seen as a complete collapse of the AI investment thesis.

In mid-July, the South Korean government temporarily suspended the listing of new single-stock leveraged ETFs and pledged to introduce more measures to stabilize the stock market and restrict retail investors from participating in high-risk products. However, the head of the South Korean Shareholders' Alliance stated that retail investors' anger and criticism towards the government have reached a peak, with many investors believing that the related measures came too late.