South Korea has announced stricter restrictions on single-stock leveraged ETFs as part of efforts to curb speculative retail trading and reduce market volatility. Finance Minister Koo Yun-cheol announced on Tuesday that authorities would move swiftly to implement restrictions announced last week to rein in speculative trading in these high-risk investment products. According to Reuters, the latest measures include a proposal to cap investments in single-stock leveraged ETFs at 20% of an individual's total investment assets. This builds on earlier restrictions introduced two weeks ago, which regulators judged insufficient to cool a surge in retail participation in the high-risk investment products.
The tighter regulations have already reduced trading activity in the leveraged ETF sector. According to Korea Exchange data cited by Reuters, daily trading volume in the TIGER SK Hynix single-stock leveraged ETF declined to ₹291 billion ($203.5 million) on Monday from ₹482 billion on Friday, after having exceeded that level significantly the previous day. Trading in the TIGER Samsung Electronics single-stock leveraged ETF also dropped sharply, with daily turnover falling to ₹234 billion on Monday from ₹511 billion on Friday, following a peak of ₹1.4 trillion on Thursday. The two ETFs, which are the largest among roughly a dozen single-stock leveraged ETF listings in South Korea, had experienced exceptionally strong retail demand earlier this summer, with their trading volumes reaching record highs in late June.
Market participants believe the regulatory steps may already be easing pressure on the broader market. Han Ji-young, an analyst at Kiwoom Securities, said the decline in leveraged ETF trading appears to have contributed to lower day-to-day volatility in the benchmark KOSPI index, although he noted that more time would be needed to fully assess the impact. Han also pointed to a significant decline in the share of leveraged ETF trading within the broader KOSPI market. Trading volumes in these products accounted for 33.4% of total KOSPI turnover on July 30 but fell to 6.6% on July 31 and further to 5.4% on August 1. The correction has reignited concerns over the rapid expansion of leveraged investment products in South Korea, with authorities having introduced measures aimed at tightening oversight of leveraged ETFs.
In stark contrast to South Korea's regulatory crackdown, Taiwan's retail investors are demonstrating remarkable resilience in the current market downturn. According to Bloomberg, retail investors such as Dorian Hsu have embraced a deep conviction that Taiwan's world-leading semiconductor industry will continue driving wealth creation for years to come. Despite the Taiex sliding 6.5% and heading for its worst monthly decline since 2008, many traders held on and even added to positions during the selloff. The number of TSMC odd-lot shareholders rose to 2.5 million by the end of last month from about 2.3 million in June, while small shareholders in Yuanta's Top Taiwan 50 ETF grew by more than 100,000 in July. Jimmy Yu from Cathay Securities Investment Trust noted that retail investors have shown little sign of panic selling, instead adopting a 'buy-the-dip' mentality. This resilience is rooted in Taiwan's remarkable stock run, with local shares climbing roughly 25% every year from 2023 through 2025, turning investing into a national pastime.
Recent market swings have prompted regulatory attention across both markets. Over the past two weeks, Taiwan's Financial Supervisory Commission met with brokers to inquire about risk-management measures, after earlier consultations with banks on loan conditions. The FSC has also announced plans for a dashboard by the end of September displaying key leverage indicators, including outstanding margin loans and collateral margin ratios. Despite regulatory challenges, Morgan Stanley maintains an optimistic outlook for South Korean stocks, having upgraded them to overweight from equalweight, citing a recent 'leverage washout' that creates better entry opportunities. The brokerage sees the Kospi index offering 36% upside to its target of 9,000, with the gauge currently trading in a near-term range of 5,500-10,500. Global investors are showing renewed confidence, with foreigners turning buyers of ₹7.2 trillion ($5 billion) worth of stock on Friday, marking a record rally.
