[Edaily Reporter KIM YOON JI ] Foreign media reports suggest that the extreme volatility in the South Korean stock market is placing a political burden on the Lee Jae-myung administration.
On the 3rd, Bloomberg reported in an article titled “President Lee Jae-myung, Who Had Been Boosting the Stock Market, Faces Headwinds from Extreme Volatility” that anxiety spread among high-ranking officials after the KOSPI index plummeted by about 40% last week from its peak a month ago.
The South Korean stock market has risen 50% so far this year, buoyed by the strong performance of SamsungElectronics(005930)and SK hynix(000660). At the same time, the KOSPI is experiencing its most volatile year since trading began in the 1980s. According to Bloomberg, there have been 32 days on which the KOSPI rose or fell by more than 5% in a single day, accounting for about a quarter of all trading days.
As criticism of the government’s handling of the situation intensified, President Lee and many of his key aides—despite being on an 11-day diplomatic tour of South America—worked feverishly to find a solution. The heads of financial regulatory agencies canceled all scheduled vacations and convened emergency meetings.

Subsequently, the government introduced measures to curb investment in leveraged exchange-traded funds (ETFs), which had been identified as the cause of the market volatility, and on the 31st of last month, South Korea’s KOSPI index surged by approximately 18% in a single day. Nevertheless, Bloomberg noted, “The political fallout appears to have only just begun.”
President Lee took office pledging to raise the KOSPI above the 5,000 mark by 2025. The KOSPI quickly surpassed that target in January of this year. As part of policies aimed at easing pressure on Seoul’s overheated real estate market, President Lee repeatedly urged the public to invest in stocks rather than real estate.
The situation began to worsen after authorities approved the launch of about 10 leveraged ETFs tracking the SamsungElectronics(005930)and SK hynix(000660)in May of this year. Leveraged ETFs are products that typically double the daily return of the underlying asset using derivatives and borrowed funds. At one point, trading volume in these ETFs and the two semiconductor stocks accounted for more than 70% of total daily trading volume. Consequently, some observers point out that the concentration of trading in leveraged ETFs has amplified market volatility.
Bloomberg noted, “President Lee has only been in office for 14 months of his single five-year term, holds a stable majority in the National Assembly, and is not facing an election anytime soon,” but added “if a drop in his approval ratings or a sharp stock market decline were to affect overall consumer spending, it could complicate the implementation of policies such as achieving ambitious tax revenue targets, expanding social welfare spending, tightening regulations on large corporations, and constructing infrastructure for new semiconductor clusters.”
In a telephone interview with Bloomberg, Park Soo-young, a lawmaker from the People Power Party, commented on leveraged ETFs, stating, “Despite negative opinions from asset management firms, the government pushed them through without sufficient public debate, and the products were launched just about a week before the June local elections,” adding, “This has turned the Korean capital market into a massive casino even bigger than Las Vegas.”
Lee Yoon-soo, a professor at Seoul National University’s Graduate School of International Studies, noted, “Considering exchange rate issues, there was a political justification for introducing such products.” He added, “Even if there were no inherent problems with the products themselves, if the unique characteristics of the Korean market and the risks these products could pose were not sufficiently taken into account, there is room for criticism that this was a policy failure.”
Jeong In-yoon, CEO of Singapore-based Fibonacci Asset Management, referenced the popular Netflix drama “Squid Game,” saying, “It resembles the Korean mindset. It’s a dire situation, with investors suffering massive losses one after another.”