'Has Korea's stock market become a casino?' The Economist weighs in

As South Korea's stock market continues to trigger circuit-breaker measures — including repeated buy and sell sidecars suspending program orders — British business magazine The Economist has asked whether the Korean market has turned into a casino, examining current conditions and analyzing the impact of single-stock leveraged ETFs.

"It has been quite a ride for Korean investors," The Economist said Thursday. The Kospi has risen nearly threefold since early last year but has fallen about 25 percent since June.

Citing financial regulators, The Economist noted — with a touch of humor — that retail investors have been called "addicted gamblers," and said authorities are worried that speculative trading by retail investors is overheating the market to an extreme degree.

The magazine attributed the market's sharp rally since last year to the AI boom. It noted that Samsung Electronics and SK hynix — the first- and second-largest companies by market capitalization and both considered semiconductor stocks — together hold a combined market cap of $2 trillion, and that at one point the two stocks accounted for more than 80 percent of total trading volume on the Korean market.

According to Korea Exchange, total trading value on domestic markets including the Kospi and Kosdaq stood at 33.99 trillion won ($23 billion) on Wednesday. Of that, Samsung Electronics and SK hynix accounted for 15.31 trillion won, or 45.05 percent — still close to half the entire market, even as their share has declined.

The Economist said the two companies are delivering impressive earnings and that it is only natural for investors to want in, adding that 12-month forward earnings estimates have surged over the past year and that market analysts are offering optimistic outlooks.

However, the magazine expressed concern about the aggressive investment behavior of retail investors, saying leveraged ETFs are amplifying volatility across the broader market.

"Many Korean retail investors are taking on far too much risk. Korean retail investors are well known for their strong appetite for risk," The Economist said. "Some are borrowing to invest in order to maximize their exposure, and one of the most popular vehicles recently has been leveraged ETFs."

The magazine said retail investors have poured $10 billion into leveraged ETFs this year. Because of how they are structured, these products must rebalance daily — buying more shares when prices rise and selling when they fall — which the magazine said further worsens the market's extreme volatility.

The Economist also said "the most dangerous investments are leveraged ETFs that track a single stock, such as SK hynix or Samsung Electronics," and conveyed the financial authorities' deep concern over the issue.

Financial Supervisory Service Governor Lee Chan-jin said at a presidential briefing on Tuesday that he bears responsibility as a market supervisor and is accepting it. At a press briefing last month, Lee said he regrets not having "thrown myself on the floor to block" the introduction of the products.

The ruling party is considering lowering the leverage multiplier from two times to 1.5 times, while financial authorities have decided to ban new listings of single-stock leveraged ETFs starting next month and to raise minimum investment requirements.

On this, The Economist said "Korean investors have already fallen deeply for these alluring financial products," adding that "no matter how much the authorities now regret it, driving Korean investors out of the casino will not be easy."