South Korea finance minister apologizes as retail investors suffer heavy losses on leveraged chip ETFs

• South Korea's finance minister apologized on Wednesday after single-stock leveraged ETFs were introduced without careful consideration.
• Retail investors who piled into the products have racked up heavy losses following a sharp downturn in chip stocks.
• The regulator is considering restricting access to the products to professional investors only.

South Korean Finance Minister Koo Yun-cheol said on Tuesday he would seek to negotiate a mutually beneficial trade agreement with the United States.

Bloomberg | Bloomberg | Getty Images

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

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

However, 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 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.

This follows a blistering rally in the Kospi that has come to an abrupt halt, with jitters over chip stocks seeing the index plunge almost 35% over the last month.

Stock Chart Icon

The Kospi's fortunes have reversed in recent weeks as investor jitters rattled the index's largest constituents.

South Korea's Finance Minister Koo Yun-cheol accepted lawmakers' demand for an apology during 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 restricting access to the products to professional investors only.

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 contributed to this report.

Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.