Leveraged ETFs and the "Korean discount"

Korean retail investors are in the global spotlight due to volatility stemming from the potent mix of the semiconductor sector boom and leveraged exchange-traded funds (ETFs).

After breaking the 9,000-point mark, Korea’s main bourse KOSPI index has now corrected to 6,000, causing much angst among retail investors, with losses likely to be much greater for those invested in leveraged ETFs.

Right on cue, China delivered another “DeepSeek moment” when Chinese startup company Moonshot revealed a model that claims to be on par with recent models from OpenAI and Anthropic.

Just as sentiment on artificial intelligence (AI) is fading (for the time being), the news is likely to cast further uncertainty over the entire AI sector and, in turn, the semiconductor-heavy Korean stock market.

The Korean regulators have unintentionally let a genie out of the bottle by introducing single-stock leveraged ETFs, causing the steroids-induced volatility.

Previously, leveraged ETFs tracking the broader KOSPI index were available, which were much less volatile.

The extreme volatility has prompted Korean ...