South Korean stock market loses $2 trillion amid leveraged ETF crisis

South Korea's stock market experienced a significant downturn in July, with the KOSPI index falling approximately 22%, its largest single-month decline since the 2008 financial crisis. This volatility triggered four circuit breakers and resulted in an estimated $2 trillion loss in total market capitalization.

The crisis was largely driven by leveraged ETFs tracking major semiconductor stocks like Samsung Electronics and SK Hynix. As these chip stocks plummeted, leveraged positions faced massive losses, triggering margin calls for over 1.2 million accounts and resulting in approximately 320,000 to 360,000 forced liquidations.

In response to the widespread retail investor losses, South Korean financial officials issued public apologies in the National Assembly. Regulatory authorities have since moved to tighten oversight by suspending the listing of new single-stock leveraged ETFs, prohibiting aggressive promotion of these products, and significantly increasing the minimum deposit requirement for new investors to 30 million won (approximately $20,000).