South Korea Curbs Leveraged ETFs After Kospi Plunges 40%

South Korean President Lee Jae Myung is facing intense political criticism after the Kospi index plummeted approximately 40% from its July 2026 peak. The volatility followed the government's decision to fast-track single-stock leveraged exchange-traded funds tracking SK Hynix and Samsung Electronics. These instruments were intended to discourage real estate investment and prevent capital outflows, but instead attracted 78 trillion won from retail investors in May and June.

Critics, including the Korean Stockholders’ Alliance, accused the administration of creating a "gambling table" and operating the capital market like a "casino" to hit specific targets. In response to the crash, Finance Minister Koo Yun Cheol and Bank of Korea Governor Shin Hyun Song held emergency meetings to restrict retail access to these leveraged ETFs. These regulatory interventions contributed to a record 18% market rebound on July 31.

Despite the recovery, opposition lawmakers continue to challenge the administration over the lack of initial regulatory safeguards. The government maintains it is monitoring market reactions and developing further measures to stabilize the financial environment.