South Korea Lawmaker Ahn Cheol-soo Calls KOSPI ‘Casino,’ Urges Liquidation of Samsung, SK Hynix Leveraged ETFs

TradingKey - During the Asian trading session on July 6, Ahn Cheol-soo, a lawmaker from the People Power Party and former presidential candidate, publicly posted on social media, referring to the Korea Composite Stock Price Index (KOSPI) as a "casino" and calling for strong measures, including delisting, against leveraged ETFs tracking Samsung Electronics and SK Hynix.

This is not an isolated complaint. With the South Korean stock market experiencing several sharp fluctuations this year, the attitudes of both the Financial Supervisory Service (FSS) and the Bank of Korea are shifting. A liquidation targeting tens of billions of dollars in leveraged products now appears increasingly imminent.

In his post, Ahn Cheol-soo described these products as an "utter policy failure" that erodes corporate value and national wealth on a daily basis. He cited a figure: capital flowing into Samsung Electronics and SK Hynix leveraged ETFs has reached a staggering 212 trillion won. These two stocks account for nearly 60% of the KOSPI's market capitalization, and piling leveraged capital onto them is equivalent to installing an amplifier for the entire index.

On July 2, within ten minutes of the opening of the South Korean stock market, the KOSPI plunged over 5%, triggering a circuit breaker. In Hong Kong, the 2x leveraged SK Hynix ETF plummeted over 20% that day, while South Korea's domestic KODEX SK Hynix 2x Leveraged ETF crashed by more than 30%. Since the beginning of this year, the South Korean stock market has triggered market-wide circuit breakers five times, and program trading halt mechanisms have been activated more than 30 times.

The issue lies in the daily rebalancing mechanism of leveraged ETFs. These products use synthetic replication strategies, forcing investment banks to execute mechanical transactions before the market close: buying when prices rise and selling when they fall. This has nothing to do with fundamentals; when market conditions become extreme, it distorts stock prices even further.

Long-term holders have suffered even more pronounced losses. Data from the Korea Exchange (KRX) shows that in the month ending July 2, SK Hynix's stock price fell by about 7%, but several leveraged ETFs plunged by nearly 30%. Ahn Cheol-soo noted that all 14 listed leveraged products tracking Samsung Electronics and SK Hynix posted negative returns within a single month, with one of the worst-performing funds suffering a 35.9% loss.

A previous research report by CICC mentioned a figure: the long-to-short ratio of these single-stock leveraged ETFs is extremely lopsided, with the long position size being over 200 times that of the short position. In other words, almost all leveraged capital is betting that the "tech duopoly" will only go up; if the market turns, it could easily trigger a chain reaction of panic selling. South Korea's stock margin debt balance has also surged to a record high of 38 trillion won.

Meanwhile, regulators who previously approved the listing of these products have also significantly shifted their rhetoric. Lee Bok-hyun, Governor of the Financial Supervisory Service, publicly expressed regret, and the Bank of Korea's statement on July 5 was also firmer than before, warning that such products could exacerbate market concentration and one-way trading risks.

The National Assembly of South Korea has already initiated a review, with proposed measures ranging from tighter regulation to outright delisting. Today's KOSPI is no longer just a barometer of the AI chip market; leveraged derivatives are playing an increasingly dominant role. If the regulators' previous implicit expectations of market support begin to waver, the uncertainty of market trends will rise further.