South Korean Stocks Hit Circuit Breakers, SK Hynix Plunges 17% as Finance Minister Apologizes Over Leveraged ETFs

TradingKey - On July 29 during Asian trading hours, after the South Korean stock market triggered circuit breakers for two consecutive days, South Korean Finance Minister Gu Yun-cheol apologized for single-stock leveraged ETFs when responding to a lawmaker's inquiry in the National Assembly, admitting that the relevant products were introduced to the market without careful consideration.

According to South Korean lawmakers, the country's finance minister, central bank governor, and heads of financial regulatory agencies will hold an emergency meeting on Wednesday afternoon to discuss response plans for the current market turmoil.

Earlier in the morning session, when the KOSPI index fell over 6%, Gu Yun-cheol revealed during a parliamentary speech that the government is internally studying market stabilization measures and does not rule out further adjusting rules for single-stock leveraged ETFs to cope with volatility.

South Korean stock markets experienced a volatile day on Wednesday. The KOSPI index once plummeted 12% before gradually narrowing its decline to about 6%. Heavyweight SK Hynix tumbled as much as 17% after its earnings release, marking its largest-ever single-day drop, before narrowing its loss to 9.61% in the afternoon.

[Source: TradingView]

The market blamed the heightened volatility on single-stock leveraged ETFs. These products allow investors to place leveraged bets on the rise and fall of individual stocks; since some of these ETFs feature mandatory liquidation mechanisms, triggering them can accelerate stock price declines.

Last week, the Financial Supervisory Service (FSS) of South Korea suspended the issuance of new single-stock leveraged ETFs. Gu Yun-cheol's remarks on Wednesday further implied that regulators might adopt stricter restrictive measures.

Since the beginning of this year, South Korean stock markets have triggered circuit breakers nine times. Despite delivering record-breaking financial results with a 257% revenue growth and a 557% operating profit surge, SK Hynix failed to meet the market's highest expectations, turning it into one of the triggers for this round of plunge and reflecting declining market tolerance for high-valuation tech stocks.

As of press time, South Korea's Financial Services Commission (FSC) has not yet announced specific adjustment plans. The market is closely watching whether further policy signals will be released before Thursday's market open.